High-Definition TV: Eden — or Eaten?

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Ever since the 1920s, when Philo T. Farnsworth and John Baird dueled to be first to transmit pictures over the airwaves, the evolution of television has been marked by one unrelenting quest: greater clarity of picture. From grainy black-and-white resolution to color television, from cable to direct-broadcast satellite and DVD, each new technology offering consumers a clearer image — and the chance to enjoy an experience closer to reality — has proved a winning proposition.

The next frontier, high-definition television, represents such a significant advancement that consumers will not only flock to it — many, in fact, are already doing so — they will also be willing to pay a bit extra for it, just as they have for each previous technology. Moreover, there are several new factors that make HD a compelling business proposition: decreased equipment costs, increased content and "the cul-de-sac effect."

It goes without saying, of course, that consumers will gravitate to the distributor who can provide entrée to this electronic Eden.

According to the Consumer Electronics Association, in a few months there will be nearly 3 million subscribers considering their course of migration. Three million subs up for grabs? How is this possible? By the end of this year, about three million HDTV-ready sets will occupy center stage in great rooms across the U.S.

Yet, through a combination of terrestrial, cable and satellite HD decoders, only 10 percent of these homes — if that — are actually experiencing the majesty of HD. This dearth of decoders leaves a minimum of 2.5 million customers all dressed up without a date for the ball.

Why do so few owners have decoders? To date, the amount of HD content available has been insufficient to compel people to navigate the procurement process. But as The Little River Band crooned, "Hang on, help is on the way."

ABC and CBS recently announced fall primetime programming lineups that call for all scripted series to be broadcast in HD. And the addition of Discovery HD Theater, which launched on June 17, 2002, represents a roughly 50 percent increase in the quantity of HD programming available.

It marks an even greater increase in quality, given that not all programming lends itself equally to the high definition format. (An HD image of a frostbitten, grimacing mountaineer scaling the summit of Mt. Everest blows away the same image in standard definition; taking an episode of Friends
from standard to high definition probably does not represent the same level of enhanced consumer experience.) Later this year, Mark Cuban's HD Net will spawn three additional channels offering the type of content — sports and movies — that, along with world class real-life entertainment, will hasten consumer migration to HD.

Clearly, the availability of compelling HD content will drive demand for decoders, not to mention new HD-ready televisions. We are also in the early stages of yet another incredibly powerful consumer driver — what my friend Joe Rooney of Cox Communications calls "the cul-de-sac effect:" In the 1960s, curious families peeked through their neighbors' windows to see color television; we are already witnessing similar behavior with HD.

Let me share a personal experience. Last Dec. 8, my wife, without my knowledge (not that my knowledge would have mattered) volunteered us to be a host house for the neighborhood Christmas party. I knew that my chance of watching the Louisiana State University vs. Tennessee Southeast Conference Championship game that night was in peril. Despite the risk of incurring my wife's wrath, I turned on the HD set in our basement and figured I'd monitor the game intermittently throughout the party and, if lucky, catch the fourth quarter. Surely, my wanting conversational skills would encourage a timely exodus by all to the next house.

No such luck. Within 30 minutes of the first guest's arrival, more than half the revelers had bypassed the eggnog in favor of the Toshiba Corp. big screen. Many had no interest in sport, but marveled at the clear picture, crisp sound and "better than real life" experience. Within a month, Time Warner Cable of Charlotte had three of my neighbors (that I'm aware of) on their waiting list for a Scientific-Atlanta Inc. 3100 HD set-top.

Today's HD pioneers cite similar experiences. Mark Cuban, not exactly the archetypal demo for CBS, watched a full episode of Touched by An Angel
without getting up, glued by the clarity of picture. He is now betting his own money on the future of this medium.

Discovery's CEO and founder, John Hendricks, remembers his surprise on encountering his wife of 20 years intently watching an HD baseball game — the first time Maureen Hendricks had ever voluntarily chosen to watch a televised ballgame. Five years earlier, knowing that Discovery's genres of programming were uniquely suited to HD, John had already elected to allocate an extra 15 to 20 percent of budgetary expense to shoot key documentaries in HD Cam.

Soon, owning an HD-ready television without an HD decoder will be akin to having Santa Claus bring your daughter a Barbie Jeep — without a battery. You'd offer a silent prayer of thanks to Sam Walton for his 24-hour store down the street. To whom will the silent prayers of HD thank-yous be submitted?

Over the next 12 to 18 months, they will be submitted to those distributors who embrace the opportunities afforded by the next frontier in picture quality, HDTV. Fortunately, the drop in equipment costs has leveled the playing field, with the incremental cost of an integrated HD set-top box decoder currently hovering just south of $100. Instead of a "hand-made" 2001 set-top box costing nearly $1,000, a similar box can now be had for around $400. Moreover, the falling prices for HDTV-ready sets (36-inch name brand sets for $1,000 by Christmas) will further spur the rollout of an HD nation.

In 1961, FCC chairman Newton Minow declared that people watching television would see a "vast wasteland." An eager early adopter wrote to Minow, asking what time Vast Wasteland
came on. In 2002, HDTV
magazine asked 15,000 HDTV set owners to rank their favorite shows of 2001. Among the top 10: Navajo Basket Weaving
and The Mark Cuban Show.

Not to discount the production values of Navajo Basket Weaving
or Mr. Cuban's unique personality, but we're seeing the same thing we saw nearly 40 years ago, in the early days of color: A hunger for more and slightly better content.

Of course, we're not even close to seeing the quantity of content that's available in standard definition … not by a long shot. In fact, due to the type of content necessary for HD display (productions filmed in HD Cam or converted from 35mm film) there will not be a mass rush to provide HD programming any time soon (that sound is the collective sigh of distributor relief). Nor does there need to be.

If ABC, CBS, NBC, and PBS increase their level of HD programming, and if Discovery and HDNet provide sports, real-world entertainment and a complement to the movies from Showtime and Home Box Office, consumers should be satisfied for the foreseeable future. And distributors will generate new, incremental spending from the house.

I believe that the return on investment for bandwidth allocated to HD will be significant — and for those distributors who approach HD as an offensive strategy, rather than a defensive one, it could prove more than significant. With 27 million new televisions sold each year, a growing percentage of them HD-ready, there will be a large number of customers for the taking. Why shouldn't the 10 million homes with HD sets in 2005 be willing to pay an extra $20 for the equipment and content to leverage their family's most valued entertainment device?

In short, all the drivers are in place — content, declining TV and set-top box prices, all powered by the cul-de-sac effect — to create what has the potential to be a billion-dollar business within the next few years. We then are left with but one fundamental distributor question: Do you want to help chart the course and benefit from the success of HD, or do you want to let others profit at your expense? Do you want to enjoy the fruits of an Eden — or languish among the eaten?

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