Fitting On the HD Shelf

Hip-hop star Beyoncé Knowles shimmies on the screen in a form-fitting gold dress. “Let me upgrade ya,” she purrs. “Let me upgrade you to the best channels in HD.”

The message: Ditch cable and sign up for DirecTV.

The come-hither Beyoncé ad is the latest high-definition marketing fusillade from the direct-broadcast satellite operator, one in a series of broadsides aimed at cable, touting DirecTV’s soon-to-be-available lineup of 100 HD channels.

Cable operators are scrambling as fast as they can to boost their HD lineups and lessen the sting from DirecTV. They’re also fighting high-definition numbers games from Verizon Communications, which announced a target of 150 by the end of next year, and EchoStar Communications’ Dish Network, currently claiming to carry more than 70 HD channels (though that includes 22 regional sports networks and nine pay-per-view channels).

“Cable is in a terrible political situation with their customers,” Showtime Networks executive vice president of affiliate sales Tom Christie said. “They’re trying to spin the best story they can in terms of matching what DirecTV has put up there.”

Within five years, he added, “everything is going to be HD,” but for now, “cable’s playing a catch-up game.”

Getting cable distribution today remains a challenge, according to industry executives, because shelf space remains scarce. Operators “are saying, 'I want to launch HD networks, but I’ve got to find bandwidth,’ ” Turner Broadcasting System executive vice president of sales and marketing Coleman Breland said. “There’s a lot of open and even honest dialogue.”

Until operators widely deploy bandwidth-efficiency measures — such as switched digital video, which promises virtually infinite TV choices — programmers are pursuing strategies for how to rise to the top of cable’s HDTV waiting list.

“It’s an ongoing discussion,” NBC Universal president of TV networks distribution Bridget Baker said about HD carriage. Cable operators, she said, “are getting very sophisticated about how they look at their customer base. They can look across the country and see where HDTV may be spiking. They’re doing analysis on which channels would be best.”

Programmers, of course, are trying to persuade distributors that their suite of HDTV channels are the must-have additions.

There’s an urgency to get placement in HD lineups, as viewing habits get established. In 2008, 33% of U.S. households, or 37 million, will have an HDTV set, up from 22% (25 million households) this year, according to a June report by PricewaterhouseCoopers. About 52% of all households will be high-def in 2010, the report said.

“One of the primary reasons we’ve invested in high-definition is because people who have HDTV service installed start with that HD neighborhood [group of channels] first,” said Mike Hopkins, Fox Cable Networks executive vice president and general manager of affiliate sales and marketing. “We want to be where people are watching TV.”

Over the last year, many programmers have accelerated production of HD simulcasts of their core outlets. Dozens have launched this year, with scores more on tap for 2008.

Bryan McGuirk, president of SES Americom’s Media and Enterprise business unit, said the satellite distributor currently delivers 64 HD feeds on its fleet of five satellites. His team has counted at least 63 new HD channel launches scheduled for the next nine months.

Clearly, one catalyst has been DirecTV’s 100-channel stake in the ground. “We’re going through another wave of adoption with the DirecTV launches and all the new HDs,” McGuirk said. But, he added, “we’re not even in the first round yet. Cable’s got plenty of room to win on several fronts.”

More broadly, programming executives said, the rapid rise of HDTV sales pointed to the need to have high-definition content available sooner than expected.

Becky Powhatan, The Weather Channel’s executive vice president of distribution and business affairs and general counsel, said the network shifted gears in the summer of 2006 to prepare the launch of its HD simulcast before the end of this year.

“We thought we’d launch an upconverted HD simulcast in 2009 and do native HD in 2010,” she said. “But we changed plans. I think the pace of HDTV sales surprised everyone.”

Weather Channel also was tracking local broadcasters’ moves to HD broadcasts, and “we wanted to be sure we were going HD around the same time,” Powhatan noted.

NBCU’s Baker credits broadcasters with driving expectations among viewers to look for an HD simulcast of the regular channel. “The consumer behavior evolved to, 'Oh, is that available on HD?’ ”

For NBCU, that expanded its focus beyond unique, HD-only channels, such as its Universal HD. “The change is the desire for the simulcast, and that’s driven by the ultimate customer of my customer,” Baker said, meaning cable viewers.

In 2007, NBCU launched CNBC HD, USA Network HD, Sci Fi Channel HD and Bravo HD. And next year, the programmer is looking to deliver high-definition versions of Chiller, Sleuth and MSNBC.

To Turner’s Breland, now that HDTVs are a mainstream commodity, viewers assume they’ll see the familiar expanded-basic digital cable lineup mirrored in HD.

“Brands are playing a very big role as cable looks at satellite, and satellite looks at cable, and telco looks at both of them,” he said. “I think there’s a quantity race to a certain extent, but more and more what we hear is, 'What’s the next big brand you expect to see in HD?’ ”

Another question: What are programmers’ HD pricing and bundling strategies?

For some, an HD simulcast is a bonus for distributors included with the price of the standard-definition channel. The independent Outdoor Channel, for example, plans to relaunch its HD offering in the first half of 2008 as a simulcast. While it has tried to negotiate for a separate per-subscriber fee for its existing Outdoor Channel HD, currently programmed separately from the primary channel, the network will drop the extra fee for the simulcast.

“Operators need HD opportunities that cost them little to nothing, and this is an incentive for them to carry our channel in two different ways,” Outdoor Channel chief operating officer Tom Hornish said.

Delivering a high-definition simulcast, including the same ads, also allows networks to aggregate Nielsen Media Research ratings for the standard-definition and HD channels. “We’ve always struggled with how not to cannibalize ourselves with high-definition,” Hornish said.

One of the conundrums surrounding HD carriage fees is that consumers do not expect to have to pay extra for an HD simulcast. “You’re going to have a hard time explaining to customers why you’d pay for the HD version when you get it free in standard-def,” Turner’s Breland said.

Other programmers do, indeed, expect to get paid for their high-definition channels, including HD-only properties like Rainbow Media’s Voom HD Networks, HDNet and In Demand Networks’ Mojo.

“We don’t have the luxury” of giving high-definition programming away for free, said In Demand president and CEO Robert Jacobson. “If we do that, we get nothing.”

Earlier this year In Demand merged its two HD channels, INHD and INHD2, into Mojo. Launched in May, Mojo is aimed at 25- to 49-year-old men. “We saw this tsunami of HD programming coming behind us,” Jacobson said. “We knew we had to make our brand stand for something distinctive.”

Then there’s the Big Ten Network, a joint venture between Fox Cable Networks and the collegiate sports conference. The network, which launched in late August, is delivering a full-time HD simulcast channel, as well as an SD version. Fox Cable requires distributors to take the whole nine yards: SD, HD, video on demand and broadband.

“It’s a bundle of rights we’re offering in a packaged deal,” Hopkins said. “We’re not going in and saying, 'Take the SD and we’ll give you a discount.’ ”

Major cable operators, including Comcast and Time Warner Cable, have balked at carrying BTN on expanded-basic cable, objecting to fees reported to be around $1 per subscriber per month for areas in the Big Ten’s footprint. But the HD carriage requirement, per se, has not been the stumbling block, according to Hopkins: “We have not had one operator say that’s the reason” for not carrying the network in widely distributed tiers.

As for Fox’s other high-def properties, including FX HD and Speed HD — which will launch in February with the Daytona 500 — Hopkins said “we are certainly flexible. We’d like to get value back in some way, through a higher per-sub fee or it could be a combination of things.”

The economics of HD distribution are at the center of a legal spat between HDNet and DirecTV.

The programmer, backed by Dallas Mavericks owner Mark Cuban, in November sued DirecTV for breach of contract, alleging its $4.99 HD Extra Pack that includes HDNet and HDNet Movies violates the terms of their carriage agreement.

DirecTV has “decided to effectively kill HDNet’s viewership by moving the two HDNet networks from their current DirecTV broadcast package to a newly created obscure and overpriced package that puts their HDNet channels well beyond the average television viewer,” HDNet said in its lawsuit.

In response to the suit, DirecTV said it has no contractual obligations to offer HDNet in any basic package. HDNet won a temporary restraining order Nov. 12 that bars DirecTV from charging subscribers any additional fees beyond the operator’s $9.99 monthly “HD Access” fee to receive the networks.

HDNet also filed complaints with the Federal Communications Commission alleging that DirecTV’s parent, Liberty Media, has given preferential treatment to the HD networks of Liberty-affiliated Discovery Communications. For example, Discovery HD Theater isn’t included in the separately priced HD Extra Pack, HDNet said.

DirecTV told the FCC that Discovery HD Theater “is treated differently not because it is affiliated with Liberty Media’s chairman [John Malone], but because it is available free” to the satellite operator.

In any event, a big part of winning carriage of simulcasts, according to programming executives, remains being able to demonstrate that a significant portion of the content will be delivered in true HD format.

“A distributor doesn’t want an HD channel that’s just an upconverted simulcast,” A&E Television Networks executive vice president of distribution David Zagin said. “They’d just be using more bandwidth to deliver the same picture.”

For 2008, AETN has committed to have minimum thresholds of primetime programming produced in native HD: A&E HD will be more than 85% and History HD will be more than 75%, according to Zagin. BIO HD, a simulcast of the Biography Channel, will present 65% of its primetime lineup in native HD before the end of 2008.

The Weather Channel HD carries 25% native HD programming today. After it begins HD broadcasts in June 2008 from its new studio facility in Atlanta, the network will reach 60% true HD with a target of 90% by next November, Powhatan said.

“Having an aggressive rollout [for native HD programming] helps your chances to get carriage,” she said. “If we were only to have 40%-50% by the end of 2008, that would hurt us.”

National Geographic Channel HD, meanwhile, is at 100% for its primetime shows and in the “90s” for virtually all dayparts, said acting general manager Steve Schiffman. All of the network’s original programming has been produced in HD since February 2005.

Producing HD content is 10% to 20% more expensive than standard-definition digital broadcast, but the incremental cost is narrowing, Schiffman said. “It’s an investment in the quality of our brand and what it represents. It’s not something you debate. You just do it.”

Schiffman said National Geographic HD will reach 9 million households by the end of 2007, through carriage with operators including Comcast, Cox Communications, Time Warner Cable, Cablevision Systems, DirecTV and Dish.

But producing HD content is “somewhat a chicken and an egg” problem, said MTV Networks executive vice president of content distribution and marketing Denise Dahldorf, in that many HD simulcasts have limited distribution today.

“We’re trying to develop as much content as possible in HD, but we believe HD is really an evolution that will happen over the next few years,” Dahldorf said. MTVN’s initial high-definition offering, the MHD music channel, currently delivers 30% of its content in native HD format.

Besides proving they have HD-native content, programmers angling for high-def carriage emphasize that their programming is well-suited to the detail afforded by the technology.

“Our scenery is absolutely beautiful in HD — the crystal-clear water, the snowflakes,” Outdoor’s Hornish said. Although it’s not all quiet idylls: “We have rodeo, and you can see stuff flying off the bull as he’s turning around.”

Programmers also pitch distributors on their category in the context of other HD channels. Sports networks, such as ESPN and regional sports networks, were among the first cable HD simulcasts to get carriage. But, said Weather Channel’s Powhatan, “one of our messages is, the distributor needs to have a well-rounded HDTV package. Not everyone watches sports.”

Discovery, meanwhile, is proposing to enhance value for cable operators by driving viewers to its nature and science HD networks through promotional deals with consumer-electronics retailers and HDTV manufacturers.

Discovery president of domestic distribution and enterprises Bill Goodwyn said the company will focus “aggressively” in 2008 on such partnerships, including in-store displays and HDTV demonstrations.

“We expect we’ll have distribution deals with all the distributors, so that’s clearly the first step,” Goodwyn said. “The next step is to make sure there are viewers — to make sure there will be a benefit to the distributor.”

Among cable’s main tools for carving out new space for HD channels is switched digital video. The technology can deliver more programming in the same amount of bandwidth by delivering linear TV channels only when requested by subscribers.

Charter Communications, for example, expects to roughly double its high-definition channel lineup in 2008 from the low 20s today to more than 40 across its entire footprint, using switched digital video and other techniques, according to Doug Ike, vice president advanced video engineering and applications.

New HD channels “will be added market by market, as capacity and bandwidth permits,” Ike said. “We’ll stay competitive with our peers.”

Charter initiated a trial phase with BigBand Networks’ switched digital video platform in the northern part of its Los Angeles system, serving areas that include Malibu, Burbank and Glendale, Calif.

Ike said the deployment is expected to be fully operational in the first quarter of 2008, with switched digital video to come online in additional Charter markets in the next two years.

“We expect to be very aggressive in deploying switched digital video in 2008 and 2009,” he said.

Today, Charter offers fewer than 25 HD channels in its various markets. In Burbank, for example, the operator carries 21 HD channels, including seven local stations and premium channels HBO, Showtime, Starz and Cinemax.

Using switched digital video, Ike noted, “at some point, you get to infinite channel capacity” because as more programming is added the likelihood decreases that any single channel will be being watched at a given time.

“The best thing about switched digital video is that you get more benefit as you add more programming,” BigBand chief architect for cable Doug Jones said.