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The HDTV Revolution Takes Its Time

Many talk about high-def; few have it 5/29/2005 08:00:00 PM Eastern

Lest anyone forget, the high-definition revolution is, at this point, not much more than a guerilla movement. Very few viewers have HDTV sets.

Over the past year, sales have surged for digital TVs, most of which are high-def–capable, but only 5% of all TVs in the U.S. are digital, according to Durham, N.H.-based Leichtman Research Group, which just issued a study on HDTV penetration. Moreover, fewer than 2% of TV sets are receiving high-definition programming. And barely 1% of homes have only digital sets.

16 MILLION SHIPPED LAST YEAR

“The adoption [rate] of HD is not bad,” says Bruce Leichtman, LRG president and principal analyst. “There have been 16 million digital sets shipped as of last year, but that is out of 300 million sets [in existence]. The one thing that people forget is that households have [an average] 2.7 TV sets.”

He adds that relatively few digital TV sets are currently being used to receive digital signals.

Under the original government plan, stations were supposed to surrender their analog channel by the end of 2006, or when 85% of their market had digital sets, whichever came last. That 85% threshold made it almost certain that 2006 was a date that wasn’t set in concrete.

More recently, House Commerce Secretary Joe Barton (R-Texas) started pushing the 2006 giveback, but last week, he agreed to draft legislation that would push the giveback date to the end of 2008. Part of the hassle now is whether the government should defray the cost for consumers, particularly poor Americans, to buy set-top boxes to convert their old analog sets to digital.

The FCC’s old plan to have stations completely switched over from analog to digital transmission by the end of next year seems increasingly improbable—in no small part because, despite all the advertising and hype, so few TV sets can receive digital signals.

“Whether it’s 20 months from now or two years and 20 months from now, we’re going to be far away from having a majority of digital television sets,” says Leichtman. “The extra 24 months gives consumers more time to prepare. A hundred million converter boxes will have to be purchased; then there are all the cable switch-outs or adds that the cable companies will have to do. We’re talking about millions of truck rolls. That extra time will be beneficial to that process.”

Research company In-Stat (a division of B&C parent Reed Elsevier) reports that 12.9 million households had HD television sets at the end of 2004. But only 3.9 million were receiving HD programming. Moreover, 51.7 million homes are projected to have HDTV sets in 2008, with 17.4 million receiving HD programming.

Consumers with HDTV sets typically pay an extra fee for HD tiers from cable systems and direct-broadcast-satellite providers, and that’s how households with a high-definition set receive a high-def signal. HD broadcast programming can also be received via an antenna, although it’s assumed few go that route.

Leichtman estimates that more than 200 million TV sets need to be fitted with converters or another system to receive digital programming. In LRG’s annual cable and DBS study, the research company found that 92 million TV sets have a set-top box. But 124 million sets receive cable or DBS without a box. Another 84 million receive only broadcast signals.

“PENETRATION TOO LOW”

“The reason I say that we’re no closer [to switching to digital] is because, when that [original analog-giveback] bill was passed in 1997, there were only 275 million television sets in American households,” says Leichtman. “The reality is that there are more analog sets now than when the bill went through.”

Says Jimmy Schaeffler, chairman of research firm The Carmel Group, “It’s clear that there is no way the country can keep jamming digital down people’s throats this quickly. The penetration is too low, and it’s still too costly. The real world suggests this is a good idea that simply needs more time.”

Leichtman says a cutoff date is necessary to get consumers to buy TV sets and converters that receive digital signals. But, he says, “a full transition [to digital] is a very difficult process and does not follow normal consumer adoption patterns. It makes sense to have a cutoff, but it has to be a date that makes sense.”

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