In high-definition television race, satellite leads cable systems

[Gregg Lengling]

By Peter Grant
WALL STREET JOURNAL

The battle between cable and satellite companies to wire up America's televisions is moving into high definition.

Satellite has gained about 20 percent of the U.S. market for pay TV, growing faster than many experts originally predicted. Now, it is poised to boost its growth further thanks to the increasing number of consumers buying high-definition sets, which promise much sharper pictures but need special signals to reach their potential.

Such considerations prompted Lori and Michael Seinera of Plano, Texas, to drop their cable service and go with a satellite provider. The couple are hard-core viewers, with five televisions in their home and a monthly bill of about $100 for premium offerings. Until earlier this year, that $100 went to the local cable company, now Comcast Corp.

But when the Seineras decided to take the plunge and buy a high-definition set, they switched to DirecTV, a satellite TV service. The reason: DirecTV offers movies and a handful of networks like Discovery HD Theater and ESPN in high definition. Comcast isn't going to offer any high-definition programming in their Dallas suburb until later this year at the earliest.

After plunking down more than $5,000 for their system with a 43-inch plasma screen, the Seineras wanted to watch as many high-definition programs as possible. "It's like when we went from black and white to color," says Seinera, 39, a vice president at the American Airlines Center sports arena. "Once you have it, you can't go back."

HDTV sets haven't been flying off the shelves -- about 5 percent of U.S. households have one, a total of about 5.4 million. But falling prices are fueling demand. The sets cost an average of $2,400 when they were introduced in late 1998, according to the Consumer Electronics Association. Today, the average HDTV system costs $1,500, although top-end plasma screens can still run as high as $20,000. More than 1.1 million HDTV sets were sold in the first six months of this year, compared with 720,000 during the same period last year. More than 10 million U.S. households will have a high-definition set by the middle of next year, predicts Yankee Group, a Boston consulting firm. "That's the point of no return for a technology," says Aditya Kishore, a Yankee Group analyst.

But the picture on an HDTV looks little better than regular television unless the set receives a high-definition signal, either over the airwaves from a local station or from a cable or satellite operator. Until recently, satellite systems clearly led the pack. That is partly because the upgrade was easier for them. The two big satellite players -- DirecTV, a division of General Motors Corp.'s Hughes Electronics Corp., and EchoStar Communications Corp. -- installed special decoders in their "uplink" stations. The process was relatively inexpensive, though it ate up some of the systems' capacity, or bandwidth.

Both DirecTV and EchoStar, which operates under the Dish Network brand, began transmitting high-definition signals within a year of the first sets being sold. Today, each offers about five dedicated HDTV networks as well as high-definition versions of many HBO and Showtime movies and special events, like golf tournaments.

Cable's high-definition offerings have been spottier because it has been more expensive and complicated for that industry to roll out the technology. New equipment has to be installed in thousands of transmission facilities, at $100,000 to $300,000 a pop, according to industry estimates. While some cable operators, like AOL Time Warner Inc.'s cable unit, have moved quickly to upgrade nearly all their systems, others are still years away from offering widespread HDTV transmissions. At the beginning of 2003, close to half of the 72 million homes that subscribe to cable weren't able to get high-definition signals.

As a result, a disproportionate number of HDTV buyers have been signing up for satellite. About one-third of households with high-definition sets are satellite subscribers in areas where cable is available, according to Leicthman Research Group Inc., a market-research firm in Durham, N.H. That is double the market share that satellite has among households with traditional sets in cable-served areas.

Cable executives acknowledge that satellite has taken an early lead in HDTV, partly because cable companies have been focused on other products like high-speed Internet hookups. "Cable totally needs to get its act together on HD," says Jim Robbins, chief executive of Cox Communications Inc. But cable is rapidly correcting the imbalance. Cable systems are transmitting high-definition signals to more than 55 million cable subscribers, up about 50 percent from the beginning of the year.

Comcast began offering high-definition signals to about 800,000 of its Bay Area customers earlier this year. These customers have access to high-definition programming offered by KNTV, an NBC affiliate; KGO, an ABC affiliate; KQED, a PBS outlet; HBO; and Showtime.

Many of the upgraded cable systems carry the same high-definition networks that are beamed to satellite subscribers. But cable companies have an edge over satellite when it comes to transmitting high-definition programming from major broadcast networks such as CBS, NBC and ABC. Cable systems can simply retransmit the broadcast of the networks' local-affiliate stations, which increasingly offer some high-definition programs. Satellite services, in most cases, don't yet have the capacity to do that, though EchoStar is rebroadcasting the high-definition signal of CBS-owned stations in some areas. That means satellite subscribers usually must set up separate antennas to get traditional-network HDTV broadcasts.

Cable executives contend their capacity advantage will give them a boost when more shows are carried in high definition. "Satellite was out of the door first offering some HDTV, but cable is catching up rapidly and may surpass satellite in its offerings in the near future," says Robert Sachs, president of the National Cable and Telecommunications Association.

Satellite executives dispute that they will lack the capacity to match cable's HDTV offerings. In May, EchoStar announced it soon would have the capability to provide as many as 50 high-definition channels, though experts say it probably will be years before there are enough high-definition networks to fill those slots.