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Take It to the Limit

DirecTV 100-HD channel promise has cable scrambling 10/05/2007 08:00:00 PM Eastern

DirecTV, the satellite giant, is pitching much of its future on its ballyhooed expansion of high-definition (HD) channels that it claims will make it a clear winner. But cable operators, with smaller HD lineups, say what consumers really want is the right mix of channels and on-demand HD content.

The industry's move toward HD is the reason for HD World 2007, being held Oct. 10-11 in New York at the Jacob Javits Convention Center, in conjunction with the IP Media and SATCON conferences.

With its new DirecTV 10 satellite in orbit, the company has been using the expanded capacity to roll out new channels en route to its target of 100 by the end of 2007. Just last week, it rolled out a dozen. In September, it launched 21 new HD channels.

By its count, DirecTV now offers 51 HD outlets and expects to deliver 70 to its 16 million subscribers by the end of October. The company is avoiding hard launch dates, and will instead be continually adding channels as programmers become ready to go live.

But many MSOs contend that having the 40 to 50 top HD linear channels is enough to stay competitive, and that there isn't enough compelling content beyond that right now. They point out that the channels DirecTV will be launching, such as Fuel and The Science Channel, are really niche offerings.

While the number of linear HD channels varies from cable system to system, most major operators report the average is in the low to mid 20s; DirecTV's DBS rival, EchoStar's Dish Network, has 38.

But cable operators can increase their capacity through plant upgrades and the advent of switched-digital video (SDV), which sends program streams on demand rather than in a constant stream, freeing up bandwidth. That technology takes the capacity issue off the table, says Time Warner Cable Chief Marketing Officer Sam Howe. Time Warner Cable is rolling out SDV across its network over the next 12 months, giving it “unlimited” ability to offer HD content, Howe says.

Still, satellite and cable operators alike scramble to add desirable linear channels when they arrive. A case in point was the race to add TBS in HD in time for the start of the Major League Baseball playoffs last week. Sports is a big driver for viewers upgrading to HD services, and that content is needed by the distributors to stay competitive.

Satellite and cable subscribers have usually received far more channels than they know what to do with. A current Nielsen Media Research survey, updated periodically, finds that the average wired home gets 104.2 television channels but only tunes in to an average of 15.7 channels per week. But in the television business, it's axiomatic that more is better. Cable operators often use the continuing proliferation of channels to justify rate hikes.

Typically, viewers who purchase a new HD set overdose on watching anything in hi-def. After all, it's what they paid for.

Needs and Wants

“People are watching television the same way they always have,” says DirecTV Senior VP of Strategy and Development Derek Chang, “And if they're going to flip through the channels, then they are going to want to see those channels in HD.”

Comcast Corp., the nation's largest cable operator with 14 million subscribers, markets its high-definition offerings by volume as well, but the message is different.

“It's irrelevant how many channels you have,” says Comcast's Senior VP and General Manager of Video Services Derek Harrar, noting the company logs 250 million on-demand views per month. “This is the way people watch TV.”

Harrar says that Comcast launches the most popular HD channels to meet consumer demand for quality HD channels and then supplements it with the on-demand offerings. That is a common tactic among cable operators to increase their count of HD viewing opportunities. Charter Communications, for example, is also rolling out HD on demand across its systems this quarter.

Right now Comcast's approximately 180 HD on-demand offerings—mostly movies—represents a sliver of the overall on-demand library of between 9,000 and 10,000 titles per month. However, Harrar says Comcast plans to double its high-definition hours on demand in 2008 and again in 2009.

DirecTV isn't too impressed. It will launch its own broadband-enabled on-demand service before the end of the year, and argues cable's need to tout on-demand masks a deeper shortcoming: a lack of capacity to handle a high number of HD streams. “It's kind of a smoke screen from the cable side,” says DirecTV's Chang.

On another level, operators such as Cablevision Systems Corp. and Time Warner Cable are competing on price. Neither charges extra for its HD tier, in contrast to many of their competitors, which charge for access to HD content.

According to Time Warner Cable's Howe, eventually all viewing will be in HD. As such, TWC does not charge extra for the service. In the past it has offered its HD channels on a premium tier, but has moved most channels off that tier except for niche programming, such as HD-only channels like Mojo and HDNet.

While TWC currently offers around 20 channels, it has deals in place with 43 cable networks and expects to have 60 done in the next six months. With its on-demand offerings, the number of viewing opportunities is currently around 80 but will increase to 250 next year. But for consumers, at least, there might never be enough.

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