HDTV Brings Great Expectations at Birth

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With high-definition television just a few weeks old, you
can't blame its backers for monitoring its progress to see whether the new technology will
thrive. But most believe that HDTV must go through a series of growing pains before it can
live up to anyone's expectations.

The consumer press hasn't tried to hide its skepticism
about the new product category, decrying the high prices of the first-generation
digital-TV hardware and the dearth of HDTV programming. But those who have seen the 10
years of progress leading up to the technology's launch said it's too soon to become
discouraged.

"We have to look at the end-game," when
broadcasters, cable and direct-broadcast satellite will offer all of their programming in
digital or HDTV, said Gary Shapiro, president of the Consumer Electronics Manufacturers
Association. "Let's not judge this baby too hastily while it's learning to
crawl."

He was speaking at the Dawn of Digital conference two weeks
ago in Washington, D.C, sponsored by the Broadcasting and Cable Publishing Group (a
sister company to Multichannel News).

More than 40 terrestrial-television stations across the
country began voluntarily airing digital programming in the past month -- a sign that the
technology should receive more than cursory support from the broadcast industry. Federal
Communications Commission chairman William Kennard said he had originally expected only 20
stations to participate in the first round.

And a number of television manufacturers have started to
ship high-definition monitors, digital tuners and integrated HDTV sets in limited
quantities.

Hundreds of millions of dollars have gone into research and
development for HDTV, and there's no question that the players hope to recoup their
investment as quickly as possible. But many believe that trying to push HDTV too soon
could end up causing more harm than good.

DON'T OVERPROMISE

In the case of HDTV, the phrase, "Buyer beware,"
can't be overemphasized. Not only is first-generation digital-television hardware
expensive, but it's almost sure to be obsolete within a year or two, at least for cable
subscribers.

That's because today's digital televisions aren't
cable-ready when it comes to HDTV signals. And they don't even include the digital
interfaces that would allow digital-cable boxes to send HDTV signals to digital TVs or
tuners.

In the past several weeks, the consumer-electronics, cable,
DBS, computer and motion-picture industries have moved closer to reaching consensus on a
new digital interface that would allow next-generation digital-cable boxes to hook up to
future-generation digital-television sets.

But until those sets are available, industry players want
to make sure that consumers don't become disillusioned with HDTV before it even gets out
of the starting gate.

"We all have to be very adroit about not
overpromising," Thomson Consumer Electronics vice president Bruce Babcock said.

The Cable Telecommunications Association (CATA) recently
issued a booklet, called "Straight Talk on Digital Television," which operators
can send to their customers. The brochure warns cable subscribers against buying HDTV sets
today, and it addresses the differences between digital cable, digital broadcasting and
digital satellite.

The CATA brochure also attempts to clear up the perception
that analog broadcasts will disappear by the year 2006. Although that date is a government
goal, even government officials admitted that it's unlikely that there will be enough
digital televisions in consumers' homes to justify a complete switch that soon.

In light of the hype surrounding HDTV's launch, it's
important to note that HDTV won't make analog TVs obsolete, said Bill Simms, president of
sales for Zenith Electronics Corp. "American consumers will buy tens of millions of
analog TVs in the years ahead."

The government stands to gain from a quick transition to
digital television because once the transition is complete, it can reclaim the spectrum
that had been used for analog-television broadcasting and auction it off.

But even the FCC wants to make sure that consumers know
what they're getting into when they buy an early HDTV model. Kennard said the FCC plans to
issue a consumer bulletin addressing issues such as digital-cable compatibility.

Yet some consumers have been so enamored by the new
technology that they couldn't wait another day for it -- whether or not there was any HDTV
programming to watch.

Dow Stereo, a San Diego-based retailer that caters to early
adopters of new audio/video technology, has already sold a number of HDTV monitors, even
though San Diego stations are not expected to air their first digital broadcasts for
another year.

According to Dow Stereo spokesman Tom Campbell, the first
customer to buy an HDTV-ready monitor took out a naval credit union loan to pay for it.

CABLE ON THE SIDELINES

By next November, 50 percent of all U.S. households should
have access to a digital-terrestrial-broadcast signal, according to CEMA figures. And as
early as May, 30 percent should be within range of a digital signal.

To watch digital-broadcast TV in the earliest markets,
however, most households need off-air antennae, because the signals are not likely to be
delivered by cable in the short term.

A few MSOs -- most notably Cablevision Systems Corp. --
have talked about delivering the digital-broadcast signal by sending the cable directly to
subscribers' digital televisions. But most are waiting for issues like digital interfaces
and digital must-carry to be resolved first.

Operators are also waiting until their systems are upgraded
to digital and they have a good supply of HDTV-capable digital set-tops. Mass-produced
HDTV-compatible set-top boxes may be a year away, but interim solutions are expected early
next year.

Scientific-Atlanta Inc., for example, plans to ship an
HDTV-capable version of its Explorer 2000 digital set-top sometime in the first quarter of
next year, according to William Wall, S-A's technical director of subscriber networks.

Instead of including the IEEE 1394 digital interface, it
will have analog, component-video outputs to hook up to HDTV sets or to digital tuners
with component-video inputs.

Depending upon the volumes ordered, the set-top will be
priced in the $1,000 range.

"This is not going to be a cheap box," Wall
admitted, although it's still less expensive than the broadcast tuners and HDTV sets that
are currently on the market.

Some cable operators plan to pass on the cost of the boxes
to the relatively small number of customers who request an interim HDTV solution next
year. That number is expected to be small because the customers will have to meet several
criteria, including: owning a digital television or tuner; living in a market where
digital broadcasts have already begun airing; and having a cable provider that has already
upgraded to digital video.

S-A will probably build a few-thousand interim set-tops,
Wall estimated. He added that the vendor is already negotiating with a couple of MSOs for
the interim boxes.

"We wouldn't have built them otherwise," he said.

Wall said the cable and electronics industries are still
working through long-term compatibility issues, such as how cable companies will be able
to overlay graphics onto digital televisions. In a digital environment, he said, such
graphics delivery requires more functionality, both on the part of the television set and
the cable set-top box.

It will probably be late next year before digital set-top
boxes incorporating IEEE 1394 digital interfaces are delivered, Wall predicted,
considering the fact that there's a one-year development cycle. The cable and
consumer-electronics industries have not yet completely agreed on the copy-protection
specifications that they will build into the digital interfaces.

Some fear that a lack of copy protection could stall the
rollout of digital television indefinitely, claiming that Hollywood studios are reluctant
to release digital movies that can be copied over and over again with no signal
degradation. Because of their early windows, pay-per-view and video-on-demand movies are
the products most likely to be held back if copy-protection standards are not forthcoming.

TVN Entertainment Corp. plans at least one channel of PPV
in HDTV next year, according to chairman and CEO Stu Levin. "Any issues related to
product encryption would have to be settled before launch," he said.

Home Box Office -- which will deliver its first HDTV feed
in March to U.S. Satellite Broadcasting subscribers who own compatible digital televisions
-- plans to use copy protection in the future. But according to Bob Zitter, HBO's senior
vice president of technology operations, the premium-movie network has the programming
rights to air in HDTV next March, whether or not copy protection has been deployed by
then.

Zitter said HBO is supportive of any copy-protection
standard that will allow its viewers to record a single copy of its programs. (Digital
recorders capable of copying HDTV signals have not yet been developed.)

Without digital copy protection, Zitter said, consumers
might be able to distribute digital signals over the Internet one day, threatening
revenues for services such as HBO.

"That's not technically facing us today," he
added, "but it could be a possibility not too many years from now."

Television manufacturers are waiting to build digital
interfaces into their products, although many have committed to doing so once the
standards are finalized. Sharp Electronics Corp., for example, included an expansion port
on its first digital tuner, which can be upgraded to include the IEEE 1394 interface once
it's available.

First-generation digital-television receivers are not
digital-cable-compatible because they don't incorporate QAM (quadrature amplitude
modulation), the modulation scheme used by digital-cable boxes and cable modems. The 8-VSB
(vestigial-sideband) modulation scheme used by broadcasters takes up more bandwidth than
QAM.

"We didn't see any reason why they shouldn't have had
QAM from this year," Wall said. Even though conditional-access and other
interoperability issues still need to be addressed before televisions across the country
receive HDTV premium and PPV signals from cable-ready digital TVs, QAM-ready TVs would
still allow cable operators to deliver digital-broadcast signals more efficiently.

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