High Anxiety

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HDTV is a promising new product even for small cable operators, but it still poses big challenges on the content side, as systems struggle to strike deals with broadcasters for their HD signals.

That was the dual message delivered to members of the National Cable Television Cooperative — a coalition of cable systems that collectively serves about 14.5 million subscribers — who attended the group's confab here last week.

Much of the meeting, at which HDNet co-founder and president Mark Cuban was a featured speaker, focused on how smaller operators can generate the most revenue out of enhanced services, whether by tiering high-speed data offerings or launching HD programming.

Some believe that despite launch expenses, HD in the long run can be a particularly effective weapon for small operators to wield against direct-broadcast satellite.

"We all know that DBS, at least on the cable-network front, can pretty much match cable," NCTC senior vice president of programming Frank Hughes said. "I think it will be difficult for DBS to offer local broadcast [HD] to the extent that we may be able to."

During a panel on the topic, Hughes pointed out that 22% of Cox Communications Inc.'s HDTV subscribers are new to cable, and a portion of them are coming from DBS. So there's a chance for cable to not only retain subscribers with HD, but to get "cable nevers" and DBS customers as well.

But striking deals with TV stations for their HDTV signals has been problematic, with even major MSOs like Comcast Corp. and Cox failing to close HDTV pacts with CBS affiliates in some markets in time for the Super Bowl (See related story).

For its HD session, the NCTC presented a lawyer for the American Cable Association, the lobbying group for small independent cable operators, as well as a case study from a midsized MSO that rolled out HD last summer, the 200,000-subscriber Midcontinent Communications.

Chris Cinnamon, the ACA's outside counsel, warned operators to tread carefully when drafting agreements to carry a local broadcaster's digital or HD signals.

Small systems must look out for any digital TV "most favored nations" clauses, Cinnamon told the conference.

"This means you are obligated to carry this broadcaster's DTV signal as soon as you carry any other broadcaster's DTV signal," he said. "You launch one DTV broadcast signal, you have to launch one, two, three, and however many more.

"That is certainly something you want to know before you launch that first DTV signal, before you launch that CBS signal because of HD content, and then you realize you have to pick up Fox, CBS and some independents."

Cinnamon also warned that operators might have to shell out more in copyright fees if they aren't careful about how they package and tier a broadcaster's digital signals.

In line with Cinnamon's remarks, Midcontinent's biggest HDTV hurdles haven't been with the technology or marketing, but in trying to forge agreements with TV stations, according to Tom Simmons, the MSO's vice president of public policy.

"The hardest stumbling block that we've seen out there has in fact been dealing with some of the broadcasters, who are extremely proud of compelling product that they put on the air, so much so that they say, 'We want more space for product we haven't developed yet, but trust us, it will be as compelling as everything else that we've done,' " Simmons said.

"There have been some major stumbling blocks on the retransmission side."

In an interview later, he said TV stations are not only looking for slots for additional digital channels, but other forms of compensation in exchange for their HD signals.

"The broadcasters are looking basically to get all they can." Simmons said. "The negotiating components will be more channels or cash. We're finding great variances in what the broadcasters are asking for. Typically, someone who is a big ratings leader in the market will be a little bit more difficult on the negotiations. They we'll have another broadcaster who'll say, 'We're launching high-definition, how do we get this on your system?' "

Midcontinent — a pioneer at offering digital video, telephony and high-speed data — has launched HD in four markets. "When high-definition came along, we kind of jumped on it," Simmons said.

HD was important to the MSO because it positions itself as the entertainment and technology leader in all of its markets; faces stiff competition from not only DBS, but overbuilders; and was receiving a growing number of customer requests for the service, according to Simmons.

The MSO is charging $25 a month for HDTV — $13 for the HDTV tier and $12 for the HD-capable digital set-top.

Midcontinent now has 800 total HD customers in four systems, and will need roughly at least 450 of those subscribers per system — retaining HD for a least two years — to break even with the new service, Simmons said.

"The payoff on all of this may, in fact, be a bit down the road," he said, while also pointing out, "Since our launch June 1 in Sioux Falls [S.D.], we've not had one high-definition cancellation."

The two-day conference drew 327 people, up from 248 last year. The NCTC originally wanted to cap attendance at 250, but demand was great. A second hotel was needed to accommodate the overflow.