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High-Definition: More to Come

Networks hustle to get on board to satisfy viewers 1/16/2009 07:00:00 PM Eastern

Even though it seems like the HD revolution has been around forever, there are still a number of cable networks that are racing to launch in HD to satisfy consumers. For all the fanfare, the audience for these HD channels remains limited and unmeasured by Nielsen.

But inevitably, that will change. As operators grow their HD menus and cost-conscious consumers look for distributors to maximize their investment in HD sets and service with expansive menus, cable programmers will want to solidify their positions.

Among the 30 top-rated cable channels, all but a handful offer an HD simulcast, from general-entertainment leaders TNT and USA to niche favorites like Scripps' HGTV and Food Network. There are four ESPN hi-def channels and six from Discovery. And the few holdouts, which include Hallmark Channel and MSNBC, plan to debut their HD channels later in 2009.

Even smaller specialty cable networks, including TV One, Golf Channel and Hallmark Movie Channel, are getting into HD simulcasting.

“You almost have to launch an HD channel at this point,” says SNL Kagan senior analyst Derek Baine. “People want their favorite channels in HD. The HD consumer is a high-end consumer, and no one wants to alienate that market.”

While high-definition penetration has grown steadily in the last few years, it is still in a minority of U.S. TV homes. According to recent estimates by Nielsen Media Research, 22.2% of the 114.5 million U.S. TV households had HDTV. TV consulting firm Frank N. Magid Associates reports slightly higher figures, with about 30% of U.S. homes now owning an HDTV set. Prices for HD sets have decreased as discounters become more aggressive courting would-be buyers, and the digital transition—whenever it happens—should help prompt more consumers to upgrade from analog. During the past holiday season, sources say sales of HD sets was a relatively bright spot for electronics retailers.

COURTING HIGH-END VIEWERS

At a time when networks are struggling in the advertising market, high-definition viewers give networks a positive story to communicate to clients. As Kagan analyst Baine notes, HD set owners are typically high-end viewers who are eager to put their new flat-screens to use. Networks say their research shows HD viewers will watch more and longer than their standard-definition counterparts.

Nielsen is capable of rating HD channels, but so far, it hasn't received requests from its cable clients to report standalone ratings. One explanation is that the numbers would likely be small and could diminish ratings on the standard-def channels. So, for now, HD viewership is counted in with an SD channel.

Still, the growth in the HD market is motivating more cable networks to launch HD channels. Last year, the menu of HD channels grew rapidly. Among the network groups to launch HD channels were Fox Cable, ABC Cable, Viacom and NBC Universal.

Content on HD cable channels is typically a straight simulcast of the standard-definition channel. Programming either originates in HD or is upconverted to the highest possible resolution. When that is not possible—say, live sports shot in standard-definition or archival footage—most networks squeeze the picture and frame it with bars.

Increasingly, however, cable networks are producing originals in HD and negotiating for hi-def rights to acquired series and movies. Hallmark Movie Channel HD, for instance, offers 50% of its content in high-definition or upconverts movies to high-quality digital; plans call for increasing that amount. Its sister network Hallmark Channel has been shooting its original movies in HD for the last five years, and many of those movies rerun on Hallmark Movie Channel HD in the true HD format.

Showing Hallmark Movie Channel's family-friendly lineup—which includes pictures from Disney's and Fox's libraries, as well as Hallmark Hall of Fame movies and Hallmark Channel originals—in high-def offers viewers something fresh on their HD schedule, says Hallmark Networks President Henry Schleiff. “We found there was an underserved audience when it comes to the high concept of all family movies all the time,” he says. “The combination of the Hallmark brand, the technology of HD and the content that we're providing is a very attractive package.”

Hallmark Movie Channel HD, which launched last April, reaches about 15 million HD homes on systems including Comcast and Time Warner. It is in talks with DirecTV, which touts its HD advantage.

BEEFIER BANDWIDTH

Another reason for the explosion of cable channels going HD is increased availability of bandwidth. Cable, telco and satellite operators are racing to ratchet up their HD lineups in hopes of attracting more subscribers or retaining current customers. The DBS companies, DirecTV and EchoStar's Dish Network, are aggressively expanding their HD tiers, and cable operators are scrambling to follow suit. DirecTV, for example, touts its roster of 100 HD channels and counting.

That competition is helping channels like Hallmark Movie Channel HD and others get carriage, and having a wide range of HD services gives the provider a powerful selling tool. Verizon's nascent FiOs service runs pointed commercials in which one of its installers works in the same apartment building as a cable installer. When they run into each other in the hall, the Verizon representative nonchalantly ticks off the HD advantage that he says FiOs has over other providers.

The Golf Channel last month dipped its toes into the water by launching its own HD channel. The network had been sharing a channel with sister Comcast-owned sports channel Versus, but was eager to have its own dedicated channel, says president Page Thompson.

“We are trying to step up every aspect of the channel, from our original programming to coverage of tours,” Thompson says. “If you want to be a world-class sports network these days, you need to have a 24/7 HD channel.”

This year, Golf Channel plans to produce 2,100 hours of coverage in HD, including premiere events from the PGA and LPGA tours. This month, Golf is producing four events in Hawaii in HD.

Sports networks face some of the largest obstacles to going hi-def. In addition to investing in their own production equipment, they must arrange to have high-definition-enabled production trucks to cover events. Another component is upgrading their facilities to high-definition, so studio programming can originate in HD. ESPN, for example, recently launched its all-news channel ESPN News in HD, in part because it had already upgraded its studios in HD and was capable of taking the channel to hi-def with little incremental cost.

Golf Channel is hoping to upgrade its studios to HD later this year, according to Thompson. That would increase the network's HD content significantly.

UPDATED FORECAST

The Weather Channel solved a similar problem last summer, when it moved into a new digital production facility capable of high-definition. The network actually launched an HD simulcast, Weather Channel HD, in 2007, but wasn't capable of producing its weather news in hi-def until it upgraded its production facility and studio.

News network MSNBC is in the process of upgrading as well. By the spring, MSNBC plans to air its live news and most documentaries in HD. Operating from NBC News' New York headquarters, MSNBC will use two HD-enabled control rooms, and its sets and graphics have been upgraded to hi-def. It will be the last of the cable news channels to go HD. CNN launched its HD channel in fall 2007, while Fox News Channel HD signed on last May.

While HD's audience might be small for now, network execs say they are hedging against future growth and do not want to risk losing viewers. It is a legitimate concern. According to Magid research, some HD viewers will turn away from favorite channels if they can't watch in hi-def. In a recent study, 10%-15% of HD viewers said they were watching less of a channel when they couldn't get it in HD.

“There is potential for some erosion when consumers get the HD set and focus on the HD tier and their favorite channel isn't there,” says Maryann Baldwin, VP at Magid Media Futures. The growth, she says, is purely an upside for HD consumers: “Anytime a favorite becomes available in HD, it is great for viewers.”

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