Hi-Def Television: DirecTV Plans Hi-Def Impact

Oct 31, 2005  •  Post A Comment

Next month DirecTV will launch a satellite, its second this year. Those two new birds will enable the distributor to expand local high-definition channels in 12 top markets this year and another 24 markets by the end of 2006.

When it follows up with the planned launch of another pair of satellites next year, DirecTV could finally even the playing field for distributors when it comes to high definition. Until now cable operators have had the HD advantage-they offer both national networks and local channels, and their service is less expensive because consumers pay only a small monthly box fee. DirecTV has traditionally charged hundreds for an HD setup. That’s about to change.

The satellite provider will alter its pricing structure next month as it begins marketing the availability of local HD channels in those 12 top markets and letting consumers know that, finally, the HD equipment will be free after they redeem a $200 mail-in rebate.

“Cable begins to lose the advantage,” said Adi Kishore, an analyst with The Yankee Group. However, cable operators still have a window of opportunity to leverage their lead because DirecTV’s extensive HD plans won’t be fully operational until 2007.

By then the satellite provider plans to offer 150 national HD channels in addition to more than 1,500 local channels throughout its markets. “It really is the most significant programming expansion in our history,” DirecTV spokesman Bob Marsocci said.

To date DirecTV has offered a package containing a handful of national hi-def networks, including HDNet, ESPN, Discovery HD Theater and Universal HD, for about $10.99 per month, in addition to the equipment costs. The satellite provider also shows NFL games in HD via its Sunday Ticket “Super Fan” package for $49 per season for existing subscribers and $99 for new ones.

Satellite provider EchoStar plans to add local HD channels in some markets by the end of this year. It doesn’t charge start-up costs for a basic HD setup.

While satellite will be catching up to cablers with local fare, cable’s current advantage won’t disintegrate in one fell swoop, said Bruce Leichtman, president of Leichtman Research Group. “If DirecTV does aggressively roll it out, the rising tide could lift all boats,” he said.

But Mr. Leichtman said cable operators have failed to capitalize on the now shrinking window to lock up HD customers, among the most desirable subscribers. “We aren’t talking about some $40-a-month basic customer. It’s the high-end customer,” he said. “[Cable operators have] done a good job in pricing … but they are not being as aggressive as they could be.”

Mr. Leichtman noted that a gulf exists between those who have bought HD sets and those who have actually signed up to receive HD programming from a cable or satellite operator. The number is currently about 40 percent, which means that 60 percent of HD set owners are not receiving HD programming.

Programmers say they want to help bridge that gap. ESPN’s Bryan Burns, VP of strategic planning and business development, said ESPN is developing programs with its distribution partners to help them take advantage of the opportunity to woo those potential consumers, whom he called “low-hanging fruit.”

Comcast also said it also works with its retail partners to help them educate customers about how they can receive HD service. The operator has a retail presence in more than 1,000 locations.

Distributors also must make it clear in their messaging exactly which channel consumers must select to watch a program in HD, Mr. Leichtman said. Many networks post on-air messages indicating “Available in HD,” and consumers may believe that they are in fact watching the network in HD. The reality is that consumers need a hi-def set, a hi-def box and the HD service before they can tune the TV to an HD channel and see the images in high definition.

“[Distributors] should be communicating a lot better,” Mr. Leichtman said.

DirecTV will emphasize in its local marketing next month that it will offer a potpourri of channels. DirecTV can do that because it’s migrating away from the MPEG-2 video compression stream used today to the more efficient MPEG-4, which has the potential to deliver twice as many HD channels in the same bandwidth.

That’s a healthy improvement in capacity, said Reggie Bradford, president of Tandberg Television, which is supplying the equipment to DirecTV to make the transition. Most of cable’s existing HD base relies on MPEG-2, Mr. Bradford said. As a result, cable operators may not initially be able to offer as many HD channels as will DirecTV. But he expects cable operators to make the transition relatively soon.

“In the next couple of years, cable will definitely launch MPEG-4 high-definition television everywhere,” he said. He added that he expects the change to hi-def television to be dramatic: “For consumers it will be like the transition between black-and-white to color.”

While DirecTV may have a capacity advantage, cable’s strength lies in its ability to offer additional services such as telephone and high-speed Internet access, as well as the possibility of mobile telephone service in the future, especially if the cabler is aligned with a wireless provider, Mr. Bradford said.

Cable operators are also testing other solutions to free up bandwidth, such as eliminating analog premium channels or reducing the number of pay-per-view channels offered.

At this stage in the game the industry is unable to accurately gauge consumer demand for HD channels.

“What’s required to win in the mind of the consumer?” asked Ron Lamprecht, VP of new media at NBC Universal Cable. “Do you need to have 50 channels? It’s not clear right now whether or not more is necessarily better. … Maybe winning in the consumer’s mind is going to be offering 50-plus networks, but if they want the 15 best networks, then maybe 15 is the number. It’s way too early to know.”