High-Def’s Gaping Technology Gap

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When the National Cable & Telecommunications Association boasted last month that 84 million U.S. homes sit in front of cable systems that offer some HDTV programming, the gap between opportunity and reality became — in keeping with high-def lingo — crystal clear.

While 84 million is an impressive number, only about 9 million households in the U.S. actually own HDTV monitors. And, on a more pertinent note, barely 1.4 million cable homes actually have the cable HD-capable set-top boxes required to see high-definition shows.

<p>Defining HD</p><p>HDTV penetration in millions of U.S. households:</p>

DBS HD

0.6

Cable HD Tuners

1.4

Over-the-Air HD Tuners

1.2

HD Monitors

9

Cable HH Passed

84

Right now, the number of homes that receive airborne HDTV signals actually outstrips the cable HDTV audience. Local, terrestrial TV high-definition channels reach about 1.2 million digital TV tuners. And two direct-broadcast satellite services, DirecTV Inc. and EchoStar Communications Corp.’s Dish Network, collectively have about 600,000 customers with HD receivers, split pretty much evenly between them.

While that may sound discouraging to the cable industry, cable’s share of the HDTV audience will pick up quickly, according to data being compiled by the Consumer Electronics Association.

CEA director of industry analysis Sean Wargo expects that by 2005, about 70% of all viewers who view HD programs will watch via cable — a familiar viewership ratio.

By general consensus, early HDTV adopters have overwhelmingly focused their attention on DVDs and other non-transmitted programming. Even without the brouhaha about cable retransmission of local broadcaster’s HDTV signals — now substantially resolved — the slow rollout of HDTV cable set-top boxes has limited the viewership of high-def programming in cable homes.

Motorola Inc. says it has put about 1 million HDTV set-top boxes (mostly the DCT-5100 model) into the pipeline. But for competitive reasons, most operators decline to disclose how many such units are actually in consumers’ homes.

Scientfic-Atlanta Inc. cites 460,000 HDTV boxes deployed in its latest sales disclosure.

Meanwhile, DirecTV and Dish Network have been activating upgraded HD set-top boxes at an approximately equal pace, according to industry sources.

“Going forward, you’ll have more sets that have the new POD [point-of-deployment device, or CableCARD] and are 'Digital-Cable Ready,’” explains CEA’s Wargo. The CableCARD is just entering the retail HD pipeline.

“By FCC mandate, those sets will also have to include an ATSC [Advanced Television Systems Committee] tuner [for broadcast DTV reception],” he adds.

TV-set makers will “feel compelled to put” ATSC and digital cable-ready technology into new equipment,” says Wargo. That will lead to situations in which the consumer must purchase a digital monitor able to receive both cable and over-the-air HDTV signals, he adds.

Like many researchers, Wargo acknowledges the technology is “changing too fast” to make responsible growth estimates. Nonetheless, the CEA foresees enormous increases in the number of homes able to see HD programming during the next four years — through the FCC’s current, albeit widely dismissed, 2007 deadline for the DTV transition.

The CEA’s forecast jumps from about 3.7% of U.S. homes viewing HD shows by the end of this year to 6.3% in 2005. The next leaps will take HD viewership to 16.6% in 2006, followed by a near-doubling of that number to 32.9% by the end of 2007.

The CEA, which has tracked consumer adoption of DTV and HDTV equipment since 1998, notes that sales have tripled during each of digital’s early years. Wargo also compared the pricing of DTV equipment during its first six years in the market against the price of color-TV equipment from 1956 through 1962, that technology’s first six years on store shelves.

Color TV sets fell about 25% in price during that span — the equivalent of about $2,500 in today’s dollars. In contrast, average prices for DTV equipment, mainly monitors, have dropped 50% (to about $1,500) during the past six years, according to CEA data.

Nonetheless, pricing remains the No. 1 barrier to HDTV adoption. In CEA’s survey, 69% of respondents cited the high cost of equipment as their main reason for eschewing the service.

Meanwhile, manufacturers and retailers — who are seeing today’s hardware fly off the shelves at almost any price — are not likely to drop the prices until demand slows.

Deciding what to buy — and what one is actually buying — remains a complicated procedure for consumers. The early March phase of CEA’s ongoing study of retail purchasing patterns identified several factors that were encouraging, albeit potentially contradictory.

In a poll of nearly 1,100 homes, CEA found that “cable ready” was the highest-ranking feature that consumers intended to obtain in their “next” TV purchase. Sixty-four percent of respondents cited “cable ready” — significantly above “high-definition” (50%) or 16-by-9 aspect ratio (38%).

Yet Wargo admits that survey respondents might not know exactly what each feature entails — or be aware of the costs involved in such hardware. He also acknowledges that “flat screen” (cited by 54% as a desired factor in their next TV purchase) might be confused with “flat panel” (31%).

Although most large-screen TV monitors (and even large cathode-ray tube sets) have a flat screen, that is not the same as a truly flat-panel device, which can typically be hung on a wall and less than six inches deep.

Such HDTV and DTV confusion creates an overarching barrier to consumer embrace of the new equipment and services, as Wargo pointed out during his March 29 presentation at CEA’s 9th annual HDTV Summit in Washington. The barrage of “digital TV” sales pitches from cable, satellite, retail and other suppliers have created a dazzled but dazed audience.

The CEA’s study found that 34% of prospective customers have already decided not to buy HDTV in their next TV set. Moreover, Wargo says, 24% confess that they are leery about some aspect of the purchase: afraid of buying the wrong product, confused about how to set it up, dismayed by too many options and the overall technical challenge.

Nonetheless, the shrinking HDTV gap may change some opinions — albeit slowly. The 84 million homes passed by cable HDTV-ready plant — or for that matter, the 106 million homes under the HDTV satellite signals – make it more enticing for HDTV equipment manufacturers and retailers to step up their sales efforts.

“There’s a large amount of pressure to be put on manufacturers to eat the incremental price” of HD equipment, Wargo says

That’s the kind of breakthrough that could narrow the gap between accessibility and actual HD viewership.

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