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Discussion Starter · #1 ·
Hello,


I have posted on this message board in the past, seeking to become an informed consumer, and was overwhelmed by the knowledge of the community here as well as the professional behavior exhibited among members. With that said, I'm coming back to solicit input for a project.


I'm a graduate student who is writing a research paper on HDTV. Specifically, the paper aims to first identify the players in the HDTV value chain including: networks (ABC, NBC, CBS, etc.), broadcast stations (your local station), satellite stations (Discovery, ESPN, etc.), cable and satellite operators, hardware manufacturers (TVs and set-top boxes), other content creators (movie studios), premium channels (HBO, Showtime), retailers, consumers, and government.


I know that the HDTV rollout has been and continues to be a slow and painful one for many of the early adopting consumers such as yourselves. I would like to understand the reasons behind the slow adoption. Specifically, for each player in the value chain, what were the incentives and disincentives they had for HDTV adoption. Furthermore, I would like to examine which of these players is most capable of increasing the rate of adoption, and which is most capable of inhibiting the rate of adoption. In doing so, I plan to do an in-depth analysis of the economics for each segment in adopting HDTV. Does any one segment derive an economic profit from moving to HDTV? Or is it a losing proposition (financially) that is only being done because of government regulations?


I would greatly appreciate comments from those who wish to contribute. First and foremost, I would like to get some ideas as to specific firms in each segment who have really been leaders in HDTV (CBS for example), and those who have been blockers (MPAA for example). I plan on spending a good portion of my time researching these specific firms as a proxy for the behavior of a segment.


Thanks in anticipation for any inputs.
 

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MY $0.02, the digital television transition is FAR too widely held to be a transition to HDTV. HD is a pleasent side benefit to the digital transition not the all encompassing thrust that many mistakenly make it.


The lack of speed in transition can be attributed the FCC not asserting their rightful regulatory might. The broadcasters drag their feet as they see the FCC as having no teeth. The manufacturers drag their feet as they dont want to invest capital to support a market that is apathetic due to ignorance and down right misinformation.


Further there exist, a few, vocal opponents to the FCC approved ATSC system. Manufacturers are fearful the FCC could be swayed to adopt a different system rendering equiptment obsolete and causing bad will with consumers.
 

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Quote:
a market that is apathetic due to ignorance and down right misinformation.



that is so true.



bg
 

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There's an interesting switch taking place with radio called HD Radio. It's basically a digital signal that's carried on the same analog frequencies that are already assigned so there does not have to be any buying or selling of current bandwidth. The FM sounds close to CD quality while the AM sounds close to current FM sound. There is no mandate to change over, yet there seems to be about 300 stations jumping on board by the end of this year and a total of 800 stations by the end of 2004. HD Radio can compete in ways that would allow the end user to see call letters, sport scores, weather and traffic updates.


Best of all, it's free, unlike the two satellite digital radio formats that have been launched a short while back. Cost of the equipment (at first) may be about only $100 more than current analog radios and they also receive the analog channels.


(All this from Sound & Vision May 2003)


I know you asked about HDTV, however I think there could be a few lessons learned by studying HD Radio and why it seems that local radio stations are interested in making the switch.


About HDTV, part of the slow adoption beside cost (at least to me) has to do with copyright laws (Hollywood) and final forms of connections between different HD equipment. IMHO, the FCC really helped with the mandate of future HD displays to have built in HD receivers (others see it as a setback because of added cost) I think once most of this is worked out (late 2004 Summer 2005) and with increasing content and HD equipment (such as HD-DVD) there will be much more jumping on board.
 

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The speed of the transition isn't really surprising. All transitions in TV (addition of UHF, color, stereo) took many years before they could be called successful. So historically, the path that HD is taking is not at all unusual.
 

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Here is my $.02.


The people that make money from the transition are the electronics manufactures. They make money both from the sales of sets to consumers and sales of equipment to broadcasters.


For broadcasters it is only a cost with little direct benefit. Aside from the professional pride of broadcasting a quality signal and the good will of being on the forefront of technology and quality there is little benefit for broadcasters.


Many of the boosters of HD are individuals and organization that gave of their own. Also the government has boosted digital television since the analog signals are a waste of the increasingly scarce broadcast spectrum.


One of the major detractors of digital television has been Sinclair Broadcasting who put the transition to digital on hold for a year by challenging the standard (Now resolved).


The direct broadcast satellite companies have benefited some. Both DirecTV and Dish Network have offered HDTV channels early on and have added subscribers because of their HDTV service. The early HDTV channels HBO HD and Showtime HD added additional customers as a result of their early HDTV offering.


Rick R
 

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I wrote a research paper about this topic a few semesters ago... if you want a copy, I still have it.


PM me if interested....
 

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Quote:
Originally posted by Rick_R
For broadcasters it is only a cost with little direct benefit. Aside from the professional pride of broadcasting a quality signal and the good will of being on the forefront of technology and quality there is little benefit for broadcasters.
There are a number of broadcasters who will disagree with you. Many believe that there is a benefit in that if more value is delivered consumers will watch more and the more they watch the more ad revenue there is. While they whine about the costs, internally they admit that they've known this was coming for over a decade and most have planned accordingly and the vast majority of the costs are replacement costs that would have been incurred anyway.


They believe the value proposition includes a better image for viewers (less tiring to watch (huge), more pleasing, more like a movie theatre), multicasting capability, push/pull abilities, etc.


Good luck on your paper.
 

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Quote:
Originally posted by Aslan
There are a number of broadcasters who will disagree with you. Many believe that there is a benefit in that if more value is delivered consumers will watch more and the more they watch the more ad revenue there is.
Really? Name 3. Personally, I can only name 2, and I think that what WRAL (Raleigh-Durham) and KING (Seattle) said a few years ago would likely be different if they had the hindsight that the last few years have provided.
 

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IMHO, the main holdup is local station's stubborn and shortsighted refusal to upgrade to digital broadcast with HD during prime time.


It's now a year past the FCC deadline for Fresno stations to commence digital broadcast, and still only 1 major network channel (ABC affilliate KFSN) is up and running.


That being said, this transition is still going much better than the shift from BW to Color. It was fully 10 years from the inception of color tv before one could count on finding a color program on every night of the week. Even with only 1 local HD station, thanks to Satellite I can find something on in HD virtually 24/7.
 

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Quote:
Originally posted by mmost
Really? Name 3. Personally, I can only name 2, and I think that what WRAL (Raleigh-Durham) and KING (Seattle) said a few years ago would likely be different if they had the hindsight that the last few years have provided.
I also find it interesting that NBC was the leading net just a few years ago. Now CBS holds the crown. Interesting that this happened during CBS's major thrust into HDTV.


My $.03 - the cable companies have been the biggest deterrent to HDTV. Most consumers are reticent about spending big $$$ for the equipment, but the door really shuts when they can't receive the major nets to boot. TWC in the West Valley (LA) alone sold 900 HD boxes in the first month last May. And that was before they advertised it!!


Of course LA is a little different as the "burbs" can't get the digital OTA because of the big hills!! and that's where a lot of the bucks are.... so without cable most are SOL.
 

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Quote:
Originally posted by ripster
I also find it interesting that NBC was the leading net just a few years ago. Now CBS holds the crown. Interesting that this happened during CBS's major thrust into HDTV.
CBS holds the title if you refer only to "total viewers." NBC is still the leader if demographics are taken into account - which they always are for advertising rates. CBS got to this position by making some brilliant programming moves, as well as by a little bit of luck. I would attribute their success about 1% (maybe less) to HD and 99% to the programming and promotional brilliance of Les Moonves and his team.
 

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Discussion Starter · #14 ·
Great inputs! Keep 'em comin'!!


With the research that my colleague and I have done to date, we've decided to really examine this from the present. That is, rather than look at who was holding up the transition 2, 3, 5, 7, etc. years ago, we really want to explore who can really enable adoption today.


Our early hypothesis is that it's the cable companies who can really move this thing from an early adopter phase to a mass market phase since cable has greater than 80% penetration in the US households today. Although levels of content still have a long ways to go, we believe the amount today has reached a point where viewers can actually derive sufficient value and use from their HDTV sets. Get the cable companies on board and we'll see this thing take off.


I actually disagree with the post that supports the FCC's ruling to implement tuners in HDTV sets. For the mass market, one of the big hurdles in an HDTV purchase is the price. It's great that prices have been coming down over the last 2-3 years, but they still have not reached the point where the average Joe can afford it. Adding ~$400 to the price of a $1000 32" set or a $2000 55" set just doesn't make sense at this point. To enhance adoption, we want the prices to decline, not increase. Furthermore, if you could get HDTV from your cable provider, then they would bear the cost of the set-top box. As I understand it, none of the cable companies are charging an additional premium for an HDTV capable STB vs. a standard digital cable STB.


Finally, I have to wonder if there is really any economic benefit for the local television station to make the conversion that allows it to broadcast an HDTV signal. I have seen estimates that range anywhere from $3MM to $15MM for a station to convert. Does broadcasting in HDTV increase viewership in a local area enough to the point where additional money can be made from advertising revenues? At this point, I doubt it. How long would it take for a station just to break even on the investment? Years?? Stations in large metro areas are certainly better off than those in remote rural areas. The cost of conversion for this latter group is probably, in many cases, more than the value of the station itself.


Thanks again and I look forward to the continued intelligent postings.
 

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Quote:
Originally posted by platypus
Great inputs! Keep 'em comin'!!


I actually disagree with the post that supports the FCC's ruling to implement tuners in HDTV sets. For the mass market, one of the big hurdles in an HDTV purchase is the price. It's great that prices have been coming down over the last 2-3 years, but they still have not reached the point where the average Joe can afford it. Adding ~$400 to the price of a $1000 32" set or a $2000 55" set just doesn't make sense at this point. To enhance adoption, we want the prices to decline, not increase. Furthermore, if you could get HDTV from your cable provider, then they would bear the cost of the set-top box. As I understand it, none of the cable companies are charging an additional premium for an HDTV capable STB vs. a standard digital cable STB.


Finally, I have to wonder if there is really any economic benefit for the local television station to make the conversion that allows it to broadcast an HDTV signal. I have seen estimates that range anywhere from $3MM to $15MM for a station to convert. Does broadcasting in HDTV increase viewership in a local area enough to the point where additional money can be made from advertising revenues? At this point, I doubt it. How long would it take for a station just to break even on the investment? Years?? Stations in large metro areas are certainly better off than those in remote rural areas. The cost of conversion for this latter group is probably, in many cases, more than the value of the station itself.

It looks like you just wrote your outline. In addition to figuring out how to get JoeSixPack on the HDTV bandwagon, and where the economic benefit might lie, I suggest you spend some time reviewing the "Black&White to Color" conversion as the best analogy for what will happen here.
 

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Plat, a couple of points on economics.


The cost of HDTV tuners is artificially high. If Mfr's were forced to include the tuners in what are now 'monitors' their additional would be less than about $25 (not including sunk costs such as R&D) and the increased retail cost of a set would likely be less than $100.


The conversion costs for stations are also artificially high. The majority of the cost is actually part of ongoing operations. Equipment wears out over time and must be replaced. Granted, the cost to replace stuff with HD is greater, but in reality is about a 20% premium. In analyzing this you have to look at 3 upgrade paths; 1) Analog replacement, 2) Digital (non HD) Replacement, and 3) Digital/HD replacement. The first number you'll hear from stations CFO's is the total cost of the equipment. If you press on the replacement cost issue then you'll hear the difference between an HD upgrade and a standard analog replacement. The real 'HD' cost though, for most of their systems except the xmitter itself, is the difference in cost between a digital replacement and digital/HD. This is because most stations would have converted all of their production systems to digital/SD anyway. With or without any mandates from the FCC or others.


For a good read on this find a Grass Valley rep and find out the cost difference in a Kalypso and a Kalypso HD. Or, look at the cost differences between an analog and digital xmitter package (including not just the purchase/install differences, but ongoing operating differences over the life of the xmitter).


Same goes for the costs to train production employees (camera, engineers, producers, etc.) on running an HD studio vs a non-HD studio. Most are taking the upgrade to HD very slow so some training is via osmosis as employees read trade rags and some will be gained through training that would have been required anyway.


I think you'll find that the real cost for a station to upgrade to HD is only about a 2% increase over what would have been their normal operating budget. Stations that are above that are mostly those who didn't head warnings as far back as the mid-80's that this was coming and a very few who were simply unlucky with the timings of some upgrades that they had to make even knowing that this was coming. A good place to start investigating this is with a non-profit PBS station (not all PBS stations are truly non-profit). They will whine the most about the costs since they get their funding by whining, but they will (and are required to be) be more open with you about the costs involved.


Are there costs for upgrading to HD? Absolutely, but they're not a great as they're made out to be and most stations know that they will likely recover all of the REAL costs, and then some.


Good luck on your paper. Keep us posted on how it's going.
 

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Platypus,


Which program are you in for this research paper? The Bay Area has some excellent b-schools, or so I've been told.:D


I think you've hit the nail on the head by identifying the importance of cable companies in the success or failure of HDTV. The cable companies' motivation is all of this is not to increase revenues in the short term. More importantly, HDTV allows cable companies to maintain their most affluent, tech-savvy customers and prevent them from going to satellite (possibly supplemented by over the air reception).


Cable companies have a powerful advantage over satellite companies. Cable companies only have to carry the local ABC station in HDTV. DirecTV or Dish Network would have to carry the HD version of many ABC stations. Clearly this would be an inefficient use of satellite's already scarce bandwidth.


In my opinion, HDTV is important to satellite to attract customers in areas where the local cable company will not or cannot provide HDTV. National channels like HBO, Showtime, Cinemax, Discovery and ESPN are all good bets for satellite (and cable). You only need to spend one chunk of spectrum on each channel. That channel can then readily be seen nationwide. For satellite, each channel added is another channel that the entire nation can watch (with an HD receiver of course).


I think HDTV is vital to the future of the major broadcast networks. The main advantage of an NBC or a CBS is that it has a large, general audience that is demographically desirable. 2002 was the first year that basic cable had greater market share than the traditional broadcast networks. The best way to keep from being lost in a 500 channel universe is to produce better looking, better sounding, better quality programming than the Lifetimes and TNN's of the world. Broadcast television's advantage is high production value programming that draws a broad audience and has sufficient syndication value in the out-years. Crappy reality TV is a short term profit grab that ultimately reduces broadcast TV to the same quality as USA and TNT, thereby making it just another crappy channel lost in a sea of mediocrity.


Where does this leave the local TV station? My view is that most local broadcast stations are an anachronistic holdover from a time when 60-70 mile broadcast radii from thousand foot towers were an efficient way of transmitting television signals. An interlocking system of network-affiliate agreements and legislative and regulatory influence-peddling (the NAB) keeps this system in place. The best we can hope for from the local broadcasters is that they pass through HDTV at full quality and broadcast at a power level adequate to reach households and cable headends. Local TV broadcasters need the networks; it is unclear whether the networks really need the local broadcasters.


The requirement for over the air DTV tuners in TV's starting in 2004 is largely driven by the perceived relevance of the terrestrial broadcast model. I would argue that so long as satellite companies are not allowed to send national channels of NBC, ABC, etc into local markets, this mandate is still necessary. The incremental cost of adding DTV tuners to all television sets is modest on a per unit basis. 22 million analog televisions were sold last year. At that volume, you can reach pretty significant economies of scale. Don't believe the $200-400 figure that you hear from consumer electronics manufacturers. The real number will be closer to $20-25 by 2007. Half of that figure will be IP royalties to Dolby, Zenith and other consumer electronics manufacturers. Much like DVD players, the royalties are a matter of CE manufacturers paying themselves. Expect Apex, Konka and other Chinese manufacturers to ignore these IP royalties and lower the cost of integrated DTV tuners even further in 2007-2010.


Jim
 

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Quote:
Originally posted by JimboG


Cable companies have a powerful advantage over satellite companies. Cable companies only have to carry the local ABC station in HDTV. DirecTV or Dish Network would have to carry the HD version of many ABC stations. Clearly this would be an inefficient use of satellite's already scarce bandwidth.
Jimbo, good comments. Cable has other advantages from a sales/marketing standpoint;


1 - Cable doesn't require a STB for every TV. This is a significant issue for people that have numerous $150 TV's in their garage, kitchen, office, bedroom, kids room, etc. It's not only a cost issue (which is significant), but also a user friendliness issue in that many people don't like the look of an STB, especially when paired with the 15" TV on their desk, nor to they like having to manage 2 remotes and trying to figure out if they're using the tuner in their TV or the tuner in the STB. Yes, there are many common-sense challenged people in the world.


2 - Cable also offers the most cost effective high-speed internet service available to most consumers and this is often bundled with cable service to make the economics to the consumer appear that much better.


3 - Cable is marginally more reliable than Sat since it's not impacted by weather or other elements of nature. Nor is cable impacted by homeowners associations or spouses not allowing dishes to be installed.


4 - Cable has the advantage of being able to offer true on-demand viewing in the future as well as the potential for interactive services.


Cable's biggest disadvantage is lack of bandwidth, but that's changing...
 

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If you are writing a paper on HDTV adoption, don't forget to include that Nielson, the guys who track what people watch don't really track HDTV viewers. Remember that advertising rates are based on the Nielson ratings. Supposedly they have the capacity, but only from the people who write in what they watch, the automatic reporting boxes do not work with HDTV. So from a broadcasters perspective there is no monetary benefit to switching over except avoiding fcc fines.


Hope this helps,

Matt
 

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Over the past several months sales of HDTV ready rear projectors has exceeded sales of std. def. analog projectors. Given that the lowest cost HDTV over the air set top boxes now retail for less than $400, then building this functionality into a HDTV set will certainly add less than this amount to the street price the TV. Since the agreement has now been reached and the FCC is on the verge of codifying the agreement for the Cable TV digital reception standards the new digital TV sets will incorporate digital tuners that are both over the air and cable ready. Quite a few manufacturers that previously indicated they were not in favor of the FCC mandate for internal over the air DTV tuners have now come around since the agreement with the cable industry has been reached that allowing for them to incorporate cable ready digital tuners. The addition of perhaps $200 to the street price of a DTV or HDTV set for a cable ready digital tuner can be weighted against having to pay the cable company $5 to $10 per month to rent the digital STB. I would contend that the $200 price figure for an integrated digital cable ready tuner will be realistic by 2005 as design costs are recovered and production volume ramps up. In the longer term that cost will fall below $100 (in today's $$) as volume increases to include virtually all TV sets sold in the U.S. (2007 and beyond). By comparison about 20 years aogo I paid about $400 for a Sony MTS stereo audio decoder adapter box in order to be able receive the early stereo broadcasts. Now that function can be found in less than $200 TVs and the added cost is probably only a few dollars. Likewise my first Dolby Digital adapter box was $600. These were not stand alone processors but rather essentially black boxes to provide an dedicated enhancement to that same manufacturers existing product. Any new technology starts off expensive and drops quickly as production volume increase. This is especially true of consumer electronics. The bottom line is the FCC forcing the provison of internal digital tuners will drive the incremental prices down to the point of "who cares" by the end of this decade.


Ron Jones
www.dtvmax.com
 
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