Cable, DBS War Moves To HDTV Battleground

[Gregg Lengling]

By Jimmy Schaeffler
TWICE
5/5/2003
 
   Carmel-by-the-Sea, Calif.— A new face-off over HDTV is looming in the ongoing battle between the digital satellite and cable multichannel TV industries, and bandwidth management could be a critical weapon.

The outcome of the battle will affect the sales of billions of dollars' worth of relatively higher-end set-top boxes, integrated HDTV sets, HDTV monitors and other related products.

Currently, both DBS providers — DirecTV and EchoStar — are pursuing HDTV deployment. Both take aim at rival cable systems by claiming leadership roles in HDTV service. The perception has helped these small-dish operators build a significant strategic advantage over cable.

New HDTV set owners have come to satellite from cable — resulting in regular monthly revenue streams that are much stronger than those for "basic" tier subscribers.

As a consequence, many industry observers note that both DirecTV and EchoStar have to continue moving aggressively into HDTV.

Cable, for its part, has to respond by aggressively deploying its HDTV solutions, as well. Clearly, cable cannot afford to lose more top-tier customers to EchoStar and DirecTV.

Cable should have a significant advantage. The typical two-way digital cable system has greater bandwidth to carry HD signals to individual markets than the limited transponders of either of its satellite competitors.

Meanwhile, some cable operators have recognized the contribution retailers have made in building the DBS industry and have started work on partnerships to help attach digital cable services to the sale of cable-ready DTV sets. The recent expanded partnership between Comcast and Best Buy in select territories is an example of many more to follow.

For DirecTV, HDTV means an opportunity like that presented by TiVo and the prospect of "sticky" customers who take or stay with DirecTV because of the Digital Video Recorder (DVR) experience.

In fact, according to DirecTV programming senior VP Stephanie Campbell, the satellite provider presently has "teams" of staff people working on spectrum, bandwidth, dish combinations, satellite combinations and similar issues related to the enhanced roll-out of HDTV.

DirecTV today delivers several HDTV national signals, but has not yet been able to offer local HDTV signals. For EchoStar, HDTV means the delivery of both local CBS signals in 17 markets, and four national HDTV services.

Like rival DirecTV, EchoStar is hoping to drive the future demand for HDTV by offering products like HDTVs, STBs and HDTV with DVRs. EchoStar also has recently offered The Masters, the NCAA Men's Basketball Tournament and the NBA Playoffs in HD format, at no additional price to subscribers.

The available EchoStar Model 6000, an HD STB with two satellite dishes, is presently priced at $699, and EchoStar's off-air HD tuner, for terrestrial delivery of local HD local signals, cost $149.

For cable, as an industry, HDTV means different things for different levels of members, depending upon size and financial resources. For most members of the National Cable Telecommunications Assn. (NCTA), HDTV is being aggressively pursued, despite its costs and questionable returns on investment (ROI). The 150 or so NCTA multiple system operator (MSO) members typically comprise bigger, deeper pocketed entities, that claim to be carrying HDTV access to 45 milliion subscribers, or 40 percent of U.S. TV households.

Specifically, NCTA members carry HDTV to a total of 103 Designated Market Areas (DMAs). The NCTA claims to serve HDTV to 73 of the top 100 DMAs. Yet despite this seemingly rosy HDTV roll-out, carriage of local digital signals remains relatively small.

This is because of technical and financial concerns, like bandwidth management, and many of the same challenges facing the satellite operators.

The other side of the cable industry, largely represented by the American Cable Assn. (ACA) and National Cable Television Cooperative, Inc. (NCTC), wants badly to provide digital, and especially HDTV, to their approximately 8 million subscribers. Yet, often because of their smaller size, these constituents have greater difficulty funding and spending what can be several thousands of dollars per subscriber necessary to upgrade from analog to digital and HDTV.

To accommodate these concerns, the often rural members of the ACA and NCTC are seeking relief for the "one size fits all" mandates of the government for cable operators to upgrade to digital.

They are asking that they be permitted to wait until more consumers seek HDTV, costs reduce and more programming is available. Also, for most ACA/NCTC members, the local digital signals required to carry HDTV are not yet available for retransmission.

Jimmy Schaeffler is an analyst at The Carmel Group (//www.carmelgroup.com), a consultancy based in Carmel-by-the-Sea, CA, and a publisher of industry databooks and the newsletters DBS Investor and Satellite Radio Investor. He can be reached at e-mail or by calling (831) 643 2222