Cable Operators

Surmounting the High-Definition Divide

11/28/2004 7:00 PM Eastern

While HDTV sets continue to fly off retail store shelves, convincing consumers to buy a high-definition programming package remains a huge challenge for both cable and satellite companies.

There are about 8 million to 9 million U.S. households that have at least one HDTV set, but only 2.3 million households subscribe to an HD programming package from cable operators or satellite providers, according to Leichtman Research Group.

Cable and satellite companies have focused much of their HD marketing efforts on joint campaigns with consumer-electronics companies looking to push more TVs, but some analysts say more needs to be done to sell programming packages to consumers who already have HD equipment.

“I think the low-hanging fruit is the 6 million people today, the early adopters who have an HD set and are not watching HD from anybody,” says Leichtman Research head Bruce Leichtman. He says the HD proposition offers cable and satellite services an opportunity to induce customers to switch to a new multichannel provider.

Educating consumers about the differences between standard and high-definition TV is also key. About half of the 5 million to 6 million U.S. households with an HD set but without a cable or satellite HD programming package think they are watching HDTV, Leichtman says, citing the results of a consumer survey his firm recently conducted.

“It’s tragic that these phenomenally expensive pieces of hardware are ending up in people’s living rooms, yet the reason they bought them is not being realized. It’s nuts,” says Jimmy Schaeffler, an analyst at the research and consultancy firm The Carmel Group. “It’s like buying a luxury car because you want to go faster, but they don’t sell you the right gas to take it any faster than 40 miles per hour.”

Schaeffler believes cable and satellite firms need to team up with broadcasters and consumer-electronics companies to educate consumers on HDTV.

But don’t expect the Consumer Electronics Association to aid that cause. When recently asked what the CEA was doing to help educate HDTV buyers on the need for cable or satellite programming packages, CEA president Gary Shapiro commented that the organization believes that consumers get a compelling proposition when they hook up their HD sets to DVD players.

But the Cable & Telecommunications Association for Marketing is of the same mindset as Schaeffler. In October, the association kicked off its “Go for 2” HDTV marketing campaign designed to emphasize that consumers need an HDTV programming package in order to take full advantage of the capabilities of their new HD sets. The campaign is a joint effort with Sony Corp., which markets cable as the best way to watch football games in HD.

The campaign comes at a time when the gap between the number of HDTV sets sold and the number of consumers that subscribe to cable or direct-broadcast satellite is growing, according to CTAM CEO Char Beales. “We’re both [cable and satellite] fighting a common enemy, and that is a lack of consumer knowledge about buying an HD set and service as a two-step process,” she says.

But figuring out exactly how good — or bad — the HDTV situation is for multichannel platforms is hardly an exact science. For example, EchoStar Communications Corp. and DirecTV Inc., which are both pitching consumers HDTV receivers that also contain a digital video recorder, haven’t released HDTV subscriber numbers. And cable operators are also reticent to reveal their HD progress with customers.

One exception is the Rainbow DBS subsidiary of Cablevision Systems Corp. The company recently reported that it counted a paltry 26,000 customers for its Voom HDTV programming service, which includes several exclusive, niche HD channels.

After its October 2003 debut, Voom did not begin charging customers for its programming package until March 31. As a consequence, it has lost 2,000 customers since the end of August.

Comcast Corp., the country’s largest cable operator, also doesn’t release its HDTV subscriber count. But Comcast CEO Brian Roberts told analysts in October that Comcast systems nationwide are adding about 15,000 HDTV subscribers weekly. At that pace, Comcast is doubling Voom’s total subscriber count every two weeks.

Leicthman says that at this time last year, DBS companies were winning a greater share of new HDTV customers than their total share of the multichannel video market. But he believes the HDTV battle between cable and satellite is “drawing a lot closer.” A survey of HDTV consumers Leichtman conducted this fall found that 8% of cable subscribers and 8% of DBS customers say they bought an HDTV programming package.

Regardless, “it’s too early to say who’s winning the war for HD, because I think people are still lining up their armies,” says Joe Rooney, senior vice president of marketing for Cox Communications Inc.

Rooney maintains that cable has the advantage in the HD war because operators have the ability to carry every local HD broadcast signal in any given market, while satellite providers don’t have the bandwidth capacity to do the same. DirecTV Inc. hopes to eliminate that advantage next year, when the company launches two additional satellites that its says will allow it to carry 500 local HD channels.

Of course, viewers can also receive HD signals from local ABC, CBS, Fox and NBC affiliates with an over-the-air antenna and receiver. But analysts note that few customers own HDTV broadcast receivers, which cost at least $300 apiece.

“Frankly, the [HD] consumer is watching regular digital cable with a DVD player, and what we as an industry need to do is convert those customers who already have HD to our high-definition service, and make sure that we win the battle of the HD covert,” Rooney says.

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