Consumers Get 'High’ Anxiety
No Clear Picture On High-Definition Do’s and Don’t
by K.C. Neel -- Multichannel News, 11/25/2007 7:00:00 PM
720p. 1080i. 108p. LCD. LED. Plasma. HDMi.
The salesman tossed the terms around like a chef mixing a Caesar salad in a hurry. An older couple stood by, baffled by all the acronyms and terms being thrown at them, despite the fact that the salesman was trying to make the complex choice as easy as possible for them. “I just want to watch TV,” whispered the woman to her husband.
This was the scene recently in a Best Buy store in suburban Denver, but it’s also being played out in stores and malls across the country as consumers — and even salespeople — wrestle with the intricacies of high-definition television sets and programming. When asked whether all channels will be delivered in HD after 2009, the Best Buy staffer initially said, “Yes.” He then backtracked by saying not all cable channels will be HD by 2009, but insisted that eventually every channel will be available in high def.
Despite the confusion, consumers are buying HDTVs. But they aren’t necessarily buying them to access high-definition programming. Rather, according to a Consumer Electronics Association study conducted earlier this year, many people are buying HDTVs to enhance their movie and gaming experiences.
Consumers have not been clamoring for HD, said Carmel Group chairman and CEO Jimmy Shaeffler. They have been told they needed it by the consumer electronics industry and the government. They also have been following the lead of friends, neighbors and relatives. “I think there are a lot of people who have purchased HD sets because they think, 'Well, my brother-in-law has one, so I guess I should have one, too,’ ” he said.
The majority of consumers are simply replacing old TV sets and opting for HD sets because the prices are coming down and salesmen are pushing them, according to Leichtman Research Group president Bruce Leichtman.
And while the consumer electronics folks may make it seem as if virtually every TV they sell today is high definition, the CEA actually estimates that more non-HD digital sets will be sold this year than high-definition sets (30.5 million digital sets vs. 20.7 million HD sets).
Still, there is no question that desire for enhanced formatted electronics and programming is heating up, and HD content providers are in a race to bulk up their offerings to differentiate themselves from the competition. At this point, 66% of consumers receiving HD signals are cable customers, according to data from the CEA. Some 27% of HD users subscribe to a satellite service; 8% get their HD signals over the air; 3% are receiving HD programming via fiber; and another 3% watch HD programming over the Internet. This mirrors the U.S. TV reception profile — indicating that HD content is not resulting in a migration to or from any content provider, CEA manager of public policy communications Megan Pollock said.
That hasn’t stopped multichannel video competitors from trying. Satellite provider DirecTV has been aggressively adding HD, touting the fact that it will deliver 100 HD signals by year’s end. Cablevision Systems has long been an HD bull, using it to retain customers and build loyalty. Other operators have been steadily adding to their stables of high-def content as well.
DirecTV doesn’t break out its HD subscriber numbers for competitive reasons, but the company has seen dramatic growth in the demand for all its advanced services including HD, digital video recorders and HD DVRs, said director of public relations Robert Mercer. “Significantly greater sales of high-definition and digital video recorder services to higher quality subscribers are having an extremely positive impact,” CEO Chase Carey said in a statement earlier this month.
“In fact, for the third quarter of this year, more than 50% of our new subscribers signed up for advanced services, compared to 28% a year ago,” Mercer said. The satellite company is currently in 65 markets with local HD service and the numbers are expected to grow as the deadline for digital transmission of broadcast signals draws near.
Comcast offers customers interested in HD an Internet tutorial on its HD programming offerings, various transmission formats, and HD sets to help them decide what they need. Like DirecTV, Comcast doesn’t break down its HD subscriber numbers, but the company reported that 5.8 million, or 40%, of its digital cable customers subscribed to advanced services including DVRs and HDTV in the third quarter compared to a year ago when 4 million, or 33% of digital customers took advanced services.
60 MILLION STRONG
If consumers are vexed about HD in terms of what they need and want in a TV set, the number of HD sets being sold is also confusing depending on which data is used to calculate usage and penetration numbers. According to the latest data from the CEA, 20.7 million HDTV units are expected to be sold this year for a total of 60.6 million HD units. That translates into a 32% penetration rate. Leichtman Research is a bit more conservative, estimating that about one-quarter of U.S. homes have at least one HD set today. Meanwhile, The Nielsen Co. said that as of October, 13.7% of TV households in the U.S. are equipped with an HD television and HD tuner capable of receiving enhanced formatted signals.
Still, Leichtman’s numbers reflect that twice as many people today have HDTVs compared to two years ago. He also predicts that over 85 million households will have at least one HDTV by the end of 2012. CEA predicts almost 110 million HDTV units will be in almost half of U.S. television households by the end of 2009.
Dropping set prices are also helping drive HDTV penetration. The average price of a 42-inch HD set — one of the most popular sizes this year — has declined to $1,522 from $1,844 last Christmas, or 18%, according to The New York Times. Retailers such as Wal-Mart are selling HD sets for as little as $780.
Buying an HDTV is only the first step toward an enhanced viewing experience. But try telling that to millions of consumers who think they are watching HD programming — but aren’t. Over three-quarters of HD set owners believe they are watching enhanced format programming, Leichtman said. But he estimates that only 53% of them are actually receiving programming in high definition from their multichannel video provider. Another 4% are watching HD via broadcast only. The CEA estimates that 8% of those customers with HD sets are watching high-def programming over the air. Either way, it leaves a significant number of customers with HD sets erroneously thinking they are watching HD programming when they aren’t, Leichtman said.
Those who don’t receive HD programming cited high costs and disinterest as reasons for staying away from the service, according to a CEA study released earlier this year. The study, “HDTV: You Have the Set, But Do You Have the Content?”, found that many consumers with HD sets want to improve their movie and gaming experience rather than watch television programming. Indeed, the most popular device hooked up to an HDTV is the DVD player, according to the CEA study. Nearly 40% of those consumer households also connect surround sound and video game systems to their HDTV.
HD SUBS HAPPIER
Another study conducted earlier this year by Ascolese Associates revealed half of HD customers are more likely to watch enhanced video product now than when they first signed up for an HD programming package. In addition, they are happier with their multichannel service overall than those customers without an HD programming package. The study also found that cable HD subscribers are more likely to watch HD programming than are satellite customers. The survey found that two-fifths (42%) of cable HD subscribers watch more than half of their TV viewing in HD vs. 30% of satellite HD subscribers.
Moreover, the study found that 56% of those who receive HD channels named a cable channel as their favorite for viewing HD fare, while 35% cited a broadcast network as their favorite. And while the number of HD channels continues to blossom and customers with HD programming are happier than those without HD service, the survey found that 54% of HD customers were dissatisfied with the amount of HD programming available to them. Indeed, 72% said they would watch more HD if their favorite shows were presented in HD. At the end of 2006, 50% of homes with an HDTV set did not have any source of HD programming, according to James McQuivey, a principal researcher at Forrester Group, because many didn’t know they had to subscribe to a specific tier of service to receive HD programming. In other cases, the consumer’s service provider didn’t have any HD fare available.
“This has likely come down this year as retailers have now realized that their atrocious HDTV return rates — as high as 15% in some cases — can be reduced if they properly inform buyers that the HDTV doesn’t actually look better unless it has a source of HD programming.” McQuivey said. “Still, by the end of the year, we expect that at least 35% of HDTV owners will still watch an HD TV without a program source.”
Certainly most of the consumers that aren’t hooked up with an HD programming package do not even realize that they are missing something, McQuivey said. “They might have digital cable or satellite service which looks decent on an HDTV and might just be glad to have a very large screen,” he said. “So the HDTV industry has to set its sights on educating the consumer.”
Carmel Group’s Schaeffler believes consumers haven’t been properly educated about HD because “no one knew how important it would be.” A lack of standards makes things even more complex,” he noted. “A lack of HD programming may be keeping some customers from plunging into the world of HD, but there are more layers of confusion than that. Different tech standards confuse people, too, and keep them away. The types of screens, the various resolutions, size and programming all combine to give consumers a good old fashioned case of the shakes when it comes to picking an HDTV.”
Some efforts are being made to address all the confusion. Manufacturers have Web sites dedicated to the technology; and retailers have printed materials and Web-based education sites to help consumers understand what they need and what’s available.
Best Buy, for instance, produces a monthly magazine explaining the intricacies of its various product offerings; and the retailer has teamed up with tech Web site CNET to provide consumers with Internet-based information.
“Multiple parties are stakeholders in this sector,” Schaeffler said. “They should all be working together to educate the consumer. DirecTV is so busy telling everyone they are the best when it comes to HD programming, but they are missing the point. They need to explain why they are the greatest and why consumers should be buying their HD product.”
Cable operators and programmers are also to blame for a lack of consumer understanding, Leichtman said. “I have been saying for years that operators should run crawls at the bottom of channels saying 'If you want to watch this program in high definition, turn to channel X.’ When they switch to that channel, another message could tell them how to sign up for HD service. I’m still not seeing that kind of thing being done.”
Multichannel video providers could also work more closely with retailers to educate consumers, Leichtman said. “It has to go beyond the general partnership with a retailer,” he said. Dish Network customers, for instance, can save $800 on a Sharp Aquos HD set when they sign up for Dish’s HD package.
Leichtman’s latest research found that 41% of HD set owners were not told how to receive HD programming when they purchased their set. Though not all in-store experiences are lacking.
Retired Qwest Communications engineer Mike Funk recounted how a salesman he spoke with recently gave him plenty of information pertaining to the kind of sets the store offered, as well as requirements and programming deals from DirecTV.
the salesman also told Funk that his store would be happy to set up an installation appointment and assist him in signing up for an HD programming package.
“The salesman answered all my questions and I felt better informed than before I went into the store,” Funk said. “But the whole thing is still very confusing. If you don’t know what kind of questions to ask, you don’t know what you really need to know to make a good decision. And you may think you are making the right decision but find out after you purchase your TV set that there’s a bunch of stuff you should’ve known before, like how much programming is going to cost.”
Consumers must do their homework before they make any big consumer electronics purchases, said the CEA’s Pollock. “TVs are changing,” she said. “Consumers used to have only a few options when it came to choosing a TV. Today, the choices are expanding all the time. It’s a double-edged sword. It’s great for consumers because they have so many choices now so they can tailor the product to their needs. But they have to do more homework in order to make the right decision.”
Funk, for one, felt he still had more homework to do before making a purchase. “I learned a lot about what I want and need, but I still have questions and I want to make sure I make the right choice the first time,” he said. “The last thing I want is to feel cheated because I chose too quickly or rashly.”
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