Hi-Def Television: Echostar Prepares to Plunge into HD

Jan 30, 2006  •  Post A Comment

Cable has traditionally had a pricing and programming advantage over satellite when it came to high definition. But that gap is now starting to close as DirecTV and EchoStar have begun to lay the foundation to offer more expansive, less expensive HD packages.

Starting Feb. 1, EchoStar will take its big plunge. The satellite operator will introduce four new HD packages that will enable it to deliver a total of more than 25 national HD channels, including new additions ESPN2 HD and Universal HD as well as five new Voom networks, up from about 18 national channels in its current HD lineup. The company will also make its first moves to add local broadcast channels in HD as it fires up Boston, Los Angeles, Chicago and New York. By the end of the year, EchoStar expects to offer local broadcast channels in HD in up to 50 markets.

This expansion comes on the heels of DirecTV’s moves last fall to expand its lineup and begin offering local broadcast channels in HD-the first indication that cable’s HD supremacy could start to erode. Now, with EchoStar ready to fire on all cylinders, consumers will have a wider range of choices and providers will face more heated competition. Cable operators will have to respond to the challenge.

EchoStar’s moves and the progress DirecTV has made in the past few months to expand its HD offering are the beginning of the process of leveling the playing field with cable, said Bruce Leichtman, president of Leichtman Research Group.

Cable has been out in front with more HD programming and better pricing, while satellite operators cooled their heels because they didn’t want customers to step up to HD using interim technology, Mr. Leichtman explained. Both EchoStar and DirecTV are now transitioning to MPEG-4 compression technology as the underpinning for their HD expansions. MPEG-4 allows service providers to deliver about twice the number of HD channels over the same amount of bandwidth. HD programming is a notorious bandwidth hog, and MPEG-4 gives providers more channel space and the luxury of a broader lineup.

The MPEG-4 Changeover

With the compression technology in place, EchoStar is better positioned to easily slide in new HD channels as they come down the pike because it will have the real estate for them. In fact, EchoStar plans to introduce up to 10 additional national HD networks by the end of the year, with HGTV and Food Network among the likely candidates.

The new compression technology is one of a number of factors that aligned at the right time, said Michael Neuman, president and chief operating officer of EchoStar.

“We knew MPEG-4 was coming and would be economical and would be coming at the same time as the proliferation of available content and happened to coincide with HD sets coming down in price. The time is perfect to go flat-out,” he said.

A content boom is expected to occur early this year. Scripps Networks will fire up HGTV and Food Network in HD, while National Geographic Channel and MTV Networks will also launch HD networks.

“There wasn’t a huge amount of content before, so we didn’t go hell-bent [until now],” Mr. Neuman said.

The MPEG-4 changeover will be gradual. Initially, only the new HD channels will rely on MPEG-4, allowing EchoStar to provide new set-top boxes only for new HD customers. Over time, it will move more channels into the new format.

An expansive HD slate will help satellite operators retain higher-end subscribers, said Kanaiya Vasani, VP of marketing for Terayon, which provides standard-definition and hi-def equipment. Cable’s video-on-demand service in particular has helped Comcast preserve its most attractive customers. Satellite providers can’t offer VOD in the same way cable can, so they hope to use HD to gain an upper hand via MPEG-4 and the capacity advantages it affords, he said.

“There is already from consumers a big pull to get HD programming. If [EchoStar does] what they are planning to do, they are really going to move the industry forward in terms of acceptance and deployment of HD,” Mr. Vasani said.

Others agree. EchoStar’s moves allow satellite operators to pull well ahead in HD, said Richard Doherty, research director for the Envisioneering Group, a technology market research firm. “Satellite is going to steal hundreds of thousands to millions of the most desirable premium customers from cable in the next year,” he predicted.

But cable operators can make improvements to their infrastructure that will help them retain top-tier customers. As more consumers sign up for HD, cable providers must implement what’s known as a “digital overlay”-an upgrade to their plants that enables analog signals to be broadcast in digital, Mr. Leichtman said. This architecture allows analog channels viewed on an HD set to look better, providing more consistent quality between HD and non-HD programming. That’s a real problem for HD customers-while the HD networks look great on an HD set, the analog channels don’t usually look as good because the larger screen makes every imperfection more pronounced.

Unequal Quality

This phenomenon is affecting satisfaction among cable’s HD subscribers. According to a recent study from Leichtman Research Group, cable customers with HD service are less satisfied with their entire cable service after they have had HD for a year, likely because of this disparity in quality. “These are not consumers you want to be unhappy,” Mr. Leichtman said.

When EchoStar launches its new HD services next month, the basic HD package will be its Dish HD Bronze, consisting of more than 60 standard-definition channels, HD local channels and the 25 national HD networks, including the new ones and networks already in EchoStar’s lineup, such as HDNet, HDNet Movies, Discovery HD Theater, ESPN HD, TNT HD and HBO and Showtime in HD for premium users. The cost will be $54.99 per month. The lease upgrade fee for the new box will be $49.99.

Its other three HD packages contain the same HD channels and local channels in HD, but include more standard-definition channels and other services, and top out at $104.99 per month.

At the start of this year about 16.2 million households had an HD set and about 7 million were receiving programming in HD on those sets, according to Leichtman Research Group.