The transition to high-definition may be one of the medium's biggest events since the advent of color television. But, as programmers and multichannel operators invest mind-boggling sums to ramp up their HD offerings, the industry has in some respects regressed to the early 1950s, when black and white sets served up fuzzy pictures and TV executives had only limited ratings data.
That's because ratings for HD channels are rarely released to the public. Nielsen Media Research can produce separate ratings for standard-definition and high-def feeds, but few programmers request those breakdowns and most channels do not release ratings data or even distribution numbers for their HD simulcasts, making it difficult to tell who is watching what in the HD universe.
“At this point, the channels aren't selling the standard-definition and high-definition feeds separately,” said Pat McDonough, Nielsen senior vice president of planning and analysis. “They are lumping [the ratings for SD and HD] together, which is understandable, because that's the way they are selling them to advertisers.”
Unfortunately, that also means executives used to getting ratings data within hours after running a program, must rely on custom ratings studies from Nielsen or turn to companies conducting consumer research on high-def television to find out what viewers are actually watching on their expensive HD sets.
To explore the changing viewing patterns in the emerging high-def world, Multichannel News conducted lengthy interviews with researchers at Nielsen and a number of other research companies.
Those conversations confirm a couple of widely held views: sports programming is indeed popular among HD viewers and the number of homes with HD sets is on the rise. But they also cast doubt on some other popular perceptions and highlighted a number of potentially lucrative markets that are not being well served by current HD offerings.
“One of the biggest questions about HD is what kind of impact does it have on the programming consumers are viewing,” said Adriana Waterston, vice president of marketing and business development at Horowitz Associates. “Does it really change the kind of content people watch because certain things look so much better than others?”
Some early data suggested that might be the case for sports and documentaries. Last year, for example, a custom study by Nielsen of football games on ESPN found that ratings were 40% to 120% higher in HD homes.
McDonough said that on a daily basis sports ratings tend to be 10% to 15% higher in HD homes than in SD homes. But she added, “We don't see higher ratings for general programming” in HD homes.
She and other researchers also noted that the demographics of the first groups to buy HD sets have had a major impact on viewing.
“It's a kind of chicken-and-egg argument,” said Bruce Leichtman, president and principal analyst of the Leichtman Research Group, which does an annual study of HD television due out later in the year. “But in this case, I'd say the [higher levels of viewing of some HD content] comes down to who is buying the HD sets. That group is higher income homes and men.”
Those groups are heavy viewers of sports, documentary and news programming, genres which typically have higher ratings in homes with HD sets, he said.
Leichtman also questions the commonly held assumption that viewers with HD sets are much more likely to watch HD content over standard-definition fare. Last year, his survey found that just 27% of HD viewers “strongly agreed with the statement that they would look to see what was on the HD tier before looking for non-HD programming,” he said.
Horowitz's Waterston agreed. “Our research has consistently found that HD programming has not changed the genres that people are watching,” she said. “HD is basically a better version of the television you already want and have.”
Horowitz's State of Digital and Interactive TV 2008 study, for example, found heavy use of HD programming in HD homes, with 71% watching HD fare every day. But it also found that “only 16% of consumers with HD say that having HD service has changed what they watch on TV,” Waterston said.
In contrast, 80% of respondents said they are “watching the same programming as before,” she added.
Researchers also stressed that viewing patterns are likely to change as the number of HD channels expands from about 15 to 75 or more and as the demographics of HD set owners begin to more closely reflect the characteristics of the overall market.
How quickly that will happen is an open question, but researchers interviewed for this article said penetration rates for HD sets continue to rise rapidly.
Nielsen data for September 2008 shows that of the 114.5 million homes in the U.S., about 39.6 million (35%) had HD sets, but only 23.3 million (20%) were actually receiving HD signals.
Similar numbers come from researchers at Frank N. Magid Associates. Preliminary data from its annual survey of HD television indicates that about 30% of all homes now have high-definition sets, up from around 20% a year ago, said Maryann Baldwin, vice president at Magid Media Futures.
Jill Rosengard Hill, senior vice president at Frank N. Magid Associates, added, “In the early years, when only a handful of HD networks were available, the skew for HD ratings was very different from standard-definition. But as more viewers subscribe to HD services and more channels simulcast their signals, the HD ratings should begin to reflect the ratings on the SD side. The earlier ratings would have been skewed by the fact that they were from older, more affluent homes and because they were only for 12 to 15 networks.”
That doesn't mean viewing patterns in HD homes can be safely ignored because they offer few insights.
In fact, according to Magid's Baldwin, programmers and operators should pay particular attention to the habits of HD viewers because they illustrate “the behavior of the next generation of TV viewers.”
About half of all homes with HD sets also have a digital video recorder, Baldwin said, citing preliminary data from Magid's annual HD survey, which will be released in mid-November.
In July 2008, Nielsen estimated that about one-quarter of all homes (25.6%) had a DVR.
“They aren't necessarily spending more time watching TV, but they have much more fragmented viewing habits,” she said. “They have more options to choose from both in terms of their linear and time-shifted viewing, and they are taking advantage of it. We see them as representative of what the entire viewing universe will look like in five years when you have wider adoption of DVRs.”
The growing popularity of HD sets is also good news for operators selling digital tiers and DVRs. “We've seen a tendency for homes to acquire HD sets, DVRs and digital cable at the same time,” which has been pushing growth in digital cable subscriptions, Nielsen's McDonough said.
She added that digital cable subscribers grew at a healthy 6% rate over the last year and that churn rates have also dropped.
“When I talk to the MSOs, they love it,” she said. “Digital cable has been offering hundreds of channels for quite a while, but people would subscribe to it and then decide they are not watching all those channels and get rid of it. HD changes that because you need digital cable for the HD set. That is really driving up penetration of digital cable and DBS, and it is something you don't cancel. The last thing you want to do is take away that good picture from your HD set.”
Digital cable growth is also pushing DVR penetration. In May 2008, Nielsen data showed that about 54% of all digital cable homes had a DVR.
While DVR usage raises a number of issues for advertisers and ad-supported networks, the trend offers some good news for cable programmers trying to take market share from broadcasters. Live viewing among people aged 18 to 49 in homes that acquired a DVR between May 2007 and May 2008 fell by 45% for English-language broadcasters but actually rose by 25% for ad-supported cable and by 9% for premium cable, according to Nielsen.
Live-plus-seven-day ratings, which include DVR playback of recorded shows over a seven day period, also fell in those homes acquiring a DVR — dropping 16% over the last year for English-language broadcasters. Ad supported cable, however, saw viewing levels increase by 18% in those new DVR homes.
One reason for the jump in cable viewing is that households acquiring a DVR frequently move into digital tiers with more channel choices, which encourages viewers to watch more cable programming.
Other research suggests that the interest in on-demand programming in HD homes will help MSOs promoting HD video on demand as a competitive advantage over satellite.
In a recent study, Leichtman found that 59% of HDTV set owners were interested in watching VOD in HD.
Cable's strategy of emphasizing the total number of HD viewing choices available to viewers at any given moment from linear and HD VOD offerings also seems to resonate with consumers.
Magid's Baldwin said the company's study asked HD set owners whether they would prefer a package of 100 linear HD channels or a package with 50 HD channels and an extensive offering of HD content on demand.
“The results were actually pretty evenly split between the two packages,” she said. “As more people start to appreciate the benefits of time shifting and on-demand content, they start to see that at the end of the day it isn't a matter of how many channels but how many programs they have available to them when they sit down to watch TV.”
Still, cable and satellite providers have some work to do when it comes to getting people to subscribe to HD services. All of the researchers cited a fairly large discrepancy between the number of homes with HD sets and the number of homes that are actually getting HD signals via cable, satellite or over the air.
Nielsen data for September 2008, for example, found that only 23.3 million of the 39.6 million HD sets in the U.S. were actually receiving HD signals.
“Unfortunately, it is no different today than it was four years ago,” Leichtman said. “The problem today is still that a lot of people think they are watching high-definition television but aren't.”
Doing a better job of educating consumers about the need for a digital HD service opens up a “huge opportunity for growth for the multichannel industry,” said Waterston. “If many of the people who have sets are not paying for the service, it is a missed opportunity.”
Unfortunately, more work is needed if operators want to capitalize on that opportunity. Baldwin noted that in recent years, Magid data has consistently shown that about 70% of homes with HD sets receive high-def service from cable or satellite providers. This year, however, preliminary data from its annual consumer survey suggests the proportion may actually fall, in part because of confusion over the digital transition.
“There is a lot of confusion out there and a significant portion of consumers believe that as part of the digital conversion all television will be presented in HD,” which is erroneous, according to Baldwin. The dip in the number of people in the upcoming 2008 study who had HD service from a multichannel provider, “may reflect the fact that people are sitting on the sidelines, thinking they don't need to get HD service because in February all cable or satellite becomes HD.”
Baldwin and others see next year's digital transition as an opportunity for cable and satellite providers to attract new subscribers. But Baldwin also cautions that it may not be the bonanza some have expected.
In the upcoming survey, Magid asked consumers what they planned to do with TV sets that were not currently hooked up to cable or satellite services. “There was a small group that suggested they might look into cable or satellite as a result of the digital transition but it was not the windfall that everyone might have been expected,” Baldwin said.
Another potentially major opportunity that is being missed by operators is the demand for HD content in ethnic homes.
Currently HD Spanish-language content is virtually non-existent, and little, if any, HD content is available for Asian-Americans. Yet, in May 2008, Nielsen found that penetration for HD sets in Hispanic homes was nearly as high as overall homes, with 21.5% of Hispanic homes having high-def sets versus 22.8% for the overall market.
Asian homes had the highest penetration of any ethnic group, at 28.1%. While African-Americans lagged at 16.2% behind whites at 23.7%, their penetration rates were increasing faster.
This data also highlighted the fact that operators are missing an opportunity to provide those groups with HD service. Only 14.8% of Hispanic homes were receiving HD signals, indicating that about 31% of the Hispanic homes with an HD TV were not hooked up to an HD service. Likewise 19% of all Asian homes with an HD set and 20% of all African-American homes with HD TVs were not receiving HD signals.
Even though many of these ethnic viewers are not hooked up to HD services, they are heavy users of their HD sets. During primetime, Asian viewers watched about 31.5% of their programming on an HD set, significantly higher than the overall rate of 21.8%, while Hispanics spent 20.8% of their time watching TV using an high def set and African Americans spent 14.9% using a HDTV. The Nielsen data does not track if they are watch standard-def or high-def programming on their HDTVs.
Doing a better job of serving these viewers is particularly important for cable, Waterston said, because many Asians and Hispanics are not cable subscribers. Horowitz's 2008 survey found that 46% of Hispanics and 40% of Asian multichannel subscribers don't have cable.
“When we look at ethnic groups compared to average consumers, we are finding that they are not only consuming HD, but all digital services at significant levels,” said Waterston. “If we find that they are just as good of consumers as everyone else, why aren't we trying to get them on board by providing them with more appealing content and services?”