Cable Operators Take The Big HDTV Plunge

Print This Page

By Alan Breznick

Alan Breznick, a veteran business journalist, is editor of Television A.M. and Cable Datacom News.

Eager to play catch-up with satellite TV providers and even to beat them at their own game, cable operators are racing to introduce high-definition TV (HDTV) service throughout the nation. In recent months, big, mid-sized and even small MSOs have all started offering HDTV cable programming packages and digital broadcast signals to their customers.

Take Armstrong Cable, which began offering high-definition service to its 212,000 basic cable customers in five states last December. The MSO has already signed up 15,000 subscribers for the service, according to Jud Stewart, vice president of marketing for Armstrong. That amounts to an impressive 40% of the company's digital cable subscribers.

Or take RCN Corp., Blue Ridge Communications and Midcontinent Media Inc. All three smaller MSOs have begun offering HDTV service in at least some of their markets.

In fact, at the National Show in Chicago in June, NCTA Pres.-CEO Robert Sachs announced that cable systems providing high def service now pass 55 million U.S. TV homes, up nearly 50% from 37 million at the start of the year. Sachs said cable systems offer HDTV service in 78 of the 100 biggest TV markets, including 18 of the top 20. In addition, he said, cable operators provide high-definition service in 34 other markets, raising the total number of areas served to 112.

"In a majority of these markets, cable operators also carry broadcast stations that offer HD," Sachs said. In fact, he noted, cable systems now carry the digital signals of 190 different local broadcasters around the country.

Cable executives say the momentum will continue through the rest of the year. At Comcast Corporation, for instance, officials plan to extend their HDTV offerings to 65% of their 21.3 million basic cable customers by the close of 2003. The nation's largest MSO now delivers high-definition service to more than 9 million subscribers in at least 20 major markets, including Philadelphia, San Francisco, Los Angeles, Chicago, Boston, Atlanta, Detroit and Washington, D.C.

"There's been a huge mind shift occurring in the cable industry in the last 24 months," Comcast Pres.-CEO Brian Roberts said at the National Show. "We're really trying to push this and make this [digital] transition as seamless... as possible."

Indeed, after years of mainly indifference to HDTV, cable operators are making the high-definition push this year partly to show that they're helping to advance the nation's switchover to digital broadcasting. In his speech at the NCTA convention, Sachs boasted that the cable industry has taken the voluntary measures to expedite the transition that FCC Chmn. Michael Powell proposed last spring. "I'm proud to say cable was the first industry to fully embrace the Powell Plan," Sachs said.

The MSOs are also seeking to gain their lost technological edge from satellite TV providers, who have seized the advantage in recent years by rolling out such high-tech products and services as HDTV, personal video recorders (PVRs) and interactive TV before cable did. Both DirecTV and EchoStar, for example, have already been offering HDTV service in all their markets for two years.

"We want to claim our lost ground," says David Watson, executive vice president of sales, marketing & customer service for Comcast. "We've given up ground for too long to the satellite industry."

Of course, DirecTV and EchoStar aren't exactly sitting still waiting for cable to make its move. In early June, for instance, DirecTV announced it will start offering a new HDTV programming package in July. The package, which will cost satellite subscribers an extra $10.99 a month, will include such new HDTV networks as ESPN HD, Discovery HD Theater, HDNet and HDNet Movies as well as HD special events and live HD telecasts of NBA basketball games.

Nevertheless, cable operators hope to use HDTV as a way to position cable better against satellite TV in retail stores. Advanced new digital cable set-top boxes with built-in high-definition tuners give cable operators their first real chance to sell TV equipment, rather than just TV service, at the retail level.

Cox Communications, for example, is now selling combined cable-HD set-tops in 4 major markets-Cleveland, Oklahoma City, Omaha and Phoenix--through distribution and marketing pacts with Best Buy and other retailers.

"HDTV gives us an incredible opportunity to get our products out at retail," says Lynne Elander, vice president of video product development for Cox. Plus, she notes, HDTV offers retailers an opportunity to "participate in the sale" of cable set tops, which have rarely been sold in stores before. Cox, which now offers HDTV service in 7 major markets covering 45% of its 6.3 million cable subscribers, intends to boost coverage to nearly 90% of its customers by year-end.

At the NCTA show, equipment makers showed off a number of snazzy new cable-HD set-tops, several of them designed especially for consumer appeal. Pioneer Electronics unveiled a new digital set-top, Voyager 4000, with both dual HD tuners and a hard-disk drive, enabling it to show HDTV pictures and offer personal video recording (PVR) features. Pioneer officials say the advanced set-top, aimed at high-end cable customers, will start shipping in the fall.

Similarly, Scientific-Atlanta showcased a new digital box designed specifically for retail sale to consumers. S-A says the set top, Explorer 3270HD, offers HDTV viewers a range of goodies, including simple installation, more audio options and new stretch and zoom capabilities for HD sets. Plans call for the set-top, already available in stores for Cox's HDTV subscribers in several markets, to be sold in other retail locations.

"For the first time in many years, I see enough technological innovations in the set-top area to reclaim" cable's technical edge, Charter Communications Executive Vice President and CTO Steve Silva declared at the convention. "It really helps us move from the information age to the broadband age."

Other cable-HD set-tops showcased at the NCTA convention included new models from Motorola Broadband Communications, Pace Micro Technology and other manufacturers. With such equipment available, MSOs are rapidly deploying HDTV service.

Consider Bright House Networks (formerly known as Advance/Newhouse). The MSO, which totaled just 300 HDTV customers at the start of 2001, now counts 23,100 high def subscribers and is adding new customers at the rate of 500 to 1,000 per month. At the NCTA show, Bright House announced a deal with Pace to deploy the Pace DC-550 HD set-top, one of the manufacturer's 2 HDTV boxes, in several divisions.

"Our customers want it," says John Rigsby, president of the Florida division of Bright House. "We're already seeing that HDTV is a factor among a significant set of our customers, particularly early adopters," in choosing cable over satellite.

Finally, cable operators are expanding rapidly into HDTV because early consumer demand for the service has proven to be surprisingly strong. As prices for digital TV sets have been dropping steadily over the last couple of years, consumers have been snapping up the sets at a growing pace, expanding the base for the cable offerings.

In its latest report, the Consumer Electronics Assn. (CEA) said equipment manufacturers sold 833,608 digital TV (DTV) sets and monitors to dealers in the first four months of the year, up 58% from the same stretch in 2002. With 5.6 million DTV units now sold since the product was introduced several years ago, CEA projects that a total of 4 million will be sold this year, 5.4 million next year, 8 million in 2005 and 10.5 million in 2006.

In a particularly bullish forecast, the Yankee Group recently forecast that HD monitors will find their way into 41.6 million homes by 2007, a penetration rate of 38%. Plus, recent surveys by both CTAM and Leichtman Research Group show that most consumers are well aware of HDTV, even if many are not yet highly familiar with it.

"With over 275 million television sets in U.S. households, it will be many years before HDTV sets become the norm," says Bruce Leichtman, president and principal analyst of Leichtman Research. "Yet with prices decreasing, purchasing an HDTV set is becoming a default for the high-end TV buyer rather than an active decision to get an HDTV set. This will result in the sale of millions of HDTV sets in the next few years."

The increased supply of HDTV programming certainly hasn't hurt demand either, especially on the cable side. In the past year, such major cable programmers as Discovery Communications and ESPN have begun offering separate HDTV networks, joining the ranks of HBO, Showtime and HDNet. Plans call for such other cable programmers as A&E Networks, Bravo, Cinemax, InDemand and Starz Encore to launch one or more HD networks by the end of the year.

"High-definition television is going to be a competitive differentiator for the cable industry," predicts ESPN & ABC Sports Pres. George Bodenheimer, who's committed to producing 3,000 hours of HDTV sports programming next year for the new ESPN HD service. "It's new product, it's new growth."

Consumer electronics retailers say the addition of such fresh high def programming will undoubtedly spur higher HDTV product and service sales. "We're starting now to see a critical mass of content," says John Taylor, vp-public affairs & communications for Zenith Electronics.

Dave Sprosty, vice president of subscription services for Best Buy, heartily agrees. "We've been selling drills for a few years without the bits," he says. He notes that Best Buy's sales of digital cable service "immediately doubled" once HDTV content was introduced in those markets.

As a result, cable operators see strong potential to make money on HDTV, at least eventually. They're split, however, on the best way to do that.

Many large MSOs--including Comcast, Cox and Charter Communications-are creating HDTV programming packages of local digital broadcast signals and basic-cable HD networks. They offer these packages to digital cable subscribers for an extra monthly fee.

"It's still a niche market," says Elander, noting that HDTV penetration now stands at about 5% of the 107 million U.S. TV households. "None of us will make a lot of money on HDTV. But it gives us a better product than our competitors."

Other MSOs, such as Time Warner and Bright House, are offering the new HD channels to their digital cable subscribers for no extra charge.

"It's an incredible product for us," says Tom Kinney, president of Time Warner Cable's Austin division. "In the first five months, we've added as many HD boxes as we did all of last year."

Next story