HDTV Tiptoes to Prime Time

[Gregg Lengling]

Years after its launch, it's starting to catch on. Plenty of problems remain, though, that make wide adoption or profits unlikely anytime soon
For the first time, sports network ESPN will broadcast the National Hockey League's Stanley Cup championships in high-definition TV. HDTV's all-digital format delivers exceptionally crisp pictures, coupled with CD-quality sound, that will bring every bone-crunching hit into homes across the land -- and make standard analog TV look lame by comparison. The NHL has been ramping up its HDTV offerings after getting phenomenal feedback from its first such broadcast -- the 2000 All-Star Game in Toronto.

During the 2002-03 season, the league will broadcast dozens of games in HDTV, including as many as 65 on HDNet, an all-HDTV channel founded by Dallas Mavericks owner and dot-com billionaire Mark Cuban. "It's amazing," says NHL Chief Operating Officer Jon Litner. "People just don't leave the set. And in a fractured marketplace where people have so many choices, you need to keep them glued to the set as long as possible."

Litner believes that HDTV, with a picture that has 10 times the detail of analog signals, will bolster his product: "It will make our rights more valuable to programmers, distributors, and sponsors." Cuban is so bullish on HDTV that he's expanding HDNet's offerings from one satellite channel to four, including a premium movie channel.

"TURNED THE CORNER"?  A decade after HDTV first hit the headlines, and half a decade after it was supposed to revolutionize TV as we know it, it's nearly set to arrive. Already, much of the major TV networks' prime-time lineup is beamed out in the format, and hundreds of local broadcasters have switched to digital transmissions, allowing their viewers to take advantage of HDTV. "We think we've turned the corner on this transition in terms of perception, number of stations on the air, and the dramatic increase in high-definition television programming being delivered by the broadcast networks," says Dennis Wharton, the National Association of Broadcasters' vice-president for communications.

Key obstacles remain. Expensive HDTV sets give consumers pause. Satellite broadcasters such as EchoStar and DirecTV may have trouble carrying both digital and analog signals, as the law requires. And setmakers still vow to fight a Federal Communications Commission mandate that all digital sets have HDTV-capable tuners built in by 2007. TV manufacturers have been procrastinating because they argue that HDTV features drive the cost of TV sets too high and scare away consumers. The changeover has also been gradual because most Americans buy a new TV only every 10 years or so.

Moreover, despite the recent proliferation of programs delivered in HDTV and lesser digital formats, most consumers don't yet understand the difference between analog and digital sets. Combined, these factors make broad adoption of HDTV and digital TV unlikely next year. According to the Consumer Electronics Assn. industry trade group, U.S. HDTV sales should reach 2.5 million units in 2002. That's only 10% or so of all sets sold.

FIENDS AND FREAKS.  For now, the biggest barrier remains cost. TVs capable of pulling in HDTV broadcasts are mostly big-screen units that cost $2,000 and up -- at least three times the average price of a TV in America. Lower-end digital sets with smaller screens require special tuners that, though they aren't terribly costly, are a pain to mess with. In short, the primary candidates for HDTV currently are home-theater fiends and sports freaks.

That will be the case, predicts Lisa Pickelsimer, manager of video product development for cable outfit Cox Communications (COX ), until the price of HDTV sets falls to $500 or so, the level at which she expects wide consumer adoption. It's something of a chicken-and-egg problem, as high prices keep the number of buyers small, which in turn makes it hard for setmakers to gain the economies of scale that allow them to cut prices.

The spread of HDTV may also be inhibited by an ongoing battle between cable operators and broadcasters such as ABC and NBC over the quality of digital signals delivered via cable. Many broadcasters are angry that cable networks downgrade signal quality to conserve bandwidth. "If you want to see the hit CBS television program CSI in full HDTV, and you're hooked up to cable, there's little chance you can do that unless you happen to be on one of the 10% of all U.S cable systems that are carrying [the digital] broadcast," says Wharton of the broadcasters association.

SQUEEZED SPECTRUM.  According to research firm Strategy Analytics, 33 million Americans will have HDTV-capable sets by 2008, about 15% of U.S. homes. But only half of them will want or be able to buy HDTV service. Cable outfits claim that they're upgrading their networks as fast as possible but that their diminished stock prices make it harder for them to ramp up capital spending while keeping shareholders happy. They also worry that HDTV has limited appeal, that not enough people have compatible sets to make it worth the cost of upgrading the network.

And satellite broadcasters -- who now carry 25% of all paid TV services -- are still trying to figure out how to support HDTV and analog TV simultaneously. With current compression technologies, broadcasters can fit either 8 to 12 standard digital channels or two capacity-hogging HDTV channels into the spectrum space required for a single analog channel. But the FCC is requiring broadcasters to carry both analog and digital signals until 85% of all sets are digital.

While cable operators have the technology to handle such a dual regime's added burden on their networks, satellite broadcasters have far more constrained delivery capacity. That's where HDNet's Cuban sees a bonanza for his startup. He expects the outfit, whose signals go out over Hughes Electronics' DirecTV satellite, to grab a considerable share of HDTV viewers.

STIFLING MOVE?  What's more, consumers may be concerned about more than the price of HDTV sets once they understand the technology. Broadcasters are inserting electronic copyright protection into digital formats that limit individuals' ability to redistribute programs on a home network or insert clips into multimedia school projects. The broadcasters say the intent is to stop piracy, but consumer advocates claim the effect will be to stifle innovative uses of digital content that consumers should be allowed to experiment with.

"Imagine if we had said in the 1950s: Let's freeze technology right here," says Joe Kraus, executive director of consumer advocacy group DigitalConsumer.org. "Had you done that, you would have missed the VCR, you would have missed TiVO, you would have missed cable television. Any time you suggest we want to freeze the state of personal use, I think its bad for economic development."

None of this is to say HDTV won't become the dominant TV format eventually -- perhaps sooner rather than later. With minimal marketing, it's already selling itself. Cox's Pickelsimer says the cable company announced in July, 2002, that it would start delivering HDTV service in Las Vegas. The morning after the announcement was made, 11 people were waiting outside Cox offices to subscribe to the new service -- not a very long line, but an indication perhaps of the interest the format arouses. Cox declines to give the total number of subscribers who now use it.

SOFTWARE UPGRADES.  Many cable operators are already pushing customers to adopt digital cable through upgraded set-top boxes. For about $10 more per month in most cases, subscribers to basic digital cable receive signals with picture quality comparable to analog signals. But cable networks can deliver these digital signals 6 to 12 times more efficiently than analog signals of comparable image quality, so digital subscribers get many more channels to choose from.

The current adoption rate is about 30% and rising, according Pickelsimer. In the near future, many of these digital tuners will also be able to deliver higher-grade HDTV signals through simple upgrades to the software that controls these set-top boxes.

Most important, the cost of HDTV units is sliding. HDNet's Cuban says prices are falling 4% per month as volumes increase and that many stores are having trouble keeping the sets on showroom floors. "When I go into the Wiz and the [NHL's New York] Rangers are playing on HDTV, you'll see a crowd of people," says the NHL's Litner. "They'll have their mouths open, catching flies."

Just don't expect fly-catching to turn into big profits soon. TV broadcasters and programmers will be swallowing the costs of upgrading everything from cameras to production facilities for some time. Even Cuban, who's among HDTV's biggest boosters, declines to talk about HDNet's revenues because they remain small. So though the Stanley Cup finals on HDTV will be a harbinger of what's ahead, it's a future that will arrive in fits and starts.
By Alex Salkever
businessweek