Slow Start to HDTV Could Help Cable

Author:
Publish date:

After 10 years of hype and promises, high-definition
television is ready to take center stage this week as the highlight of the annual Consumer
Electronics Show in Las Vegas.

Most consumers, however, may have to wait a few years
longer for the TV sets. And that slow start to HDTV could buy the cable industry precious
time to prepare for the technology.

Consumer-electronics manufacturers plan to start selling
the first digital TVs next fall, but the cost of these sets could scare away many
consumers. Initial models will start at around $3,000, and they could run as high as
$15,000, manufacturers and industry observers estimated.

Such extravagant prices will suppress demand for the sets
for several years and keep them out of reach of most households, according to estimates
from Forrester Research. Market penetration of HDTV sets will hover at around 1 percent
until 2001, and significant adoption of HDTV won't take place for another 10 years,
when 50 percent of American households will own either an HDTV set or a signal-converter
box for their analog set, said Josh Bernoff, a principal analyst with Forrester.
Broadcasters can retain both spectrum allocations if 15 percent of the people in a market
still have analog sets.

Bernoff predicted that HDTV will evolve at a pace similar
to those of other successful consumer-electronics innovations, such as the VCR and compact
disc players. Both took eight years to reach 50 percent market penetration.

'HDTV is something that we know consumers are very
interested in,' said Cynthia Upson, vice president of the Consumer Electronics
Manufacturers Association.

The CEMA has predicted that 30 percent of American
households will have digital television by 2006.

Set-top converter boxes for running digital signals on
analog TVs promise a cheaper alternative, costing $300 to $500. But they may not be widely
available for several years. Zenith Electronics Corp., for example, doesn't plan to
sell converter boxes until 1999. Also, the converter boxes won't offer all of the
features of an HDTV set.

Over one-dozen manufacturers plan to unveil HDTV or
digital-television designs at CES this week. The digital-television displays will be fed
by HDTV signals from local CBS affiliate KLAS-TV and local Public Broadcasting Service
station KLVX-TV, as well as an in-house feed supplied by REBO Studio, an HDTV-production
company.

Among the companies displaying digital televisions are
Zenith, Hitachi Home Electronics, Thomson Consumer Electronics Inc., Mitsubishi Corp.,
Sony Electronics Corp., JVC of America, Pioneer Electronics Inc., Philips Consumer
Electronics Inc., Panasonic Corp., Sharp Electronics Corp. and Samsung Corp.

'Anybody who is anybody is building them,' said
Robert Graves, chairman of the Advanced Television Systems Committee, which represented
everyone from cable programmers to transmitter manufacturers in developing HDTV standards.

Manufacturers are hesitant to say how much the new sets
will cost. They don't want to announce prices, fearing that consumers might put off
buying analog sets if the prices are low, or that they might be scared away if the prices
are too high, Graves said.

Bernoff said 1998 is mostly about jockeying for position
and establishing a reputation for making quality HDTV sets.

Manufacturers will concentrate on promoting the new digital
TVs to the high-end home-theater market, industry executives said.

'The first HDTV sets will be awesome
home-entertainment machines,' Bernoff said.

Zenith, for example, will initially offer HDTV on
large-screen projection sets, running at between $7,000 and $10,000. Zenith doesn't
plan to offer HDTV on direct-view sets for a few years, although other manufacturers may
offer some next year, said John Taylor, a spokesman for Zenith.

Electronics retailers said the expensive sets will appeal
to a very narrow consumer group.

HDTV 'doesn't appear to be a very major 1998
product,' said Elly Valas, executive director for the North American Retail Dealers
Association.

Not only will HDTV sets be priced beyond the reach of all
but the most eager early adopters, but it will take time before every local market across
the country broadcasts a digital signal.

'We think that there will be an audience for it on its
first release, but we expect a slow start,' said Eric Ommundsen, spokesman for The
Future Shop Ltd., a Vancouver, British Columbia-based electronics retailer with stores in
the Western United States.

Graves and Bernoff said the cost of HDTV sets will drop
rapidly, as the computerlike electronics required to manage digital video signals evolve.
Bernoff expects the costs of stripped-down HDTV sets to fall to $500 by 2001.

'The biggest challenge that we all face is
accelerating development of chips,' Taylor said, noting that the electronic
components will account for 50 percent of the cost of early sets. 'There's a lot
of silicon in these boxes.'

Another influence on prices will be production volumes,
leaving manufacturers in a classic chicken-and-egg retail quandary: They won't be
able to drop prices until consumers buy more sets, but consumers are not likely to buy
more sets until prices drop.

Also, television manufacturers face myriad technical
challenges in creating the first HDTV sets. They must design them to receive and display
the 12 possible formats of HDTV. They also need to create software and to install the
necessary memory for running on-screen interactive elements, as well as creating
encryption and decryption technology for pay-per-view programming.

While television-set makers are putting on a brave face,
they admitted that creating the new digital TVs is proving to be no small task. In the
process, manufacturers are running up eight-figure research-and-development costs, Bernoff
said.

'It's one heck of a lot of work,' Taylor
said. 'All of us in the television industry are burning the midnight oil to bring
this stuff to market.'

Also, many standards issues are not yet resolved, such as
how the televisions will interface with new DVD (digital versatile disc) players, said
Rich Prodan, chief technical officer at Cable Television Laboratories Inc., a testing
facility for the cable industry in Louisville, Colo.

Prodan said the coordination of standards and other
approaches to deploying the technology are the most daunting issues facing TV
manufacturers.

'The problem is not technological,' Prodan said.
'It is the lack of suitable business and regulatory agreements.'

Ommundsen said these doubts about the development of HDTV
are damping retailer enthusiasm for the products.

'We're not really, really bullish on HDTV because
there are a lot of issues that still need to be resolved,' Ommundsen said.

The delay in HDTV adoption will buy the cable industry more
time to build digital headends and to create programming that takes advantage of the
technology's clarity and digital flexibility, Bernoff said.

With digital services in place, cable can best harness the
power of HDTV and provide hundreds of channel choices, including many carrying the
highest-definition images, outstripping the combined offerings of broadcasters, the
Forrester report said.

Monica Hogan contributed to this story.

Related