Time To Invest To Capitalize On HD

The consumer love affair with high definition (HD) shows no signs of slowing, and even looks to be picking up heading into 2007.

With the price of HD-capable TV sets dropping, industry analysts predict the number of households demanding HD service will skyrocket in the coming years. According to one study, more than 80 percent of TV households in the United States will have HDTVs by 2010. Similar predictions can be found in any number of industry forecasts.

“I don’t think there is any doubt that high definition is a milestone development in the industry,” David Hill, chairman and CEO of Fox Sports Television Group and president, entertainment, of DirecTV Inc., told an audience at Satcon06 in New York.

While consumers are beginning to spend the money to fulfill their end of the HD predictions, capturing a share of those revenues will require the satellite industry to make capital expenditures at levels that investors may not be comfortable with, but ones that must be made.

Hill provided highlights from the 2002 and 2005 Super Bowls produced by Fox. The 2002 production was in 480p, and Fox moved up to 780p for 2005. While the investment required to provide the HD content runs high, HD “reenergizes the TV experience,” he says. “… We haven’t  made the HD investment because we believe it’s a passing fad.”
Satellite pay-TV operators DirecTV and Echostar Communications also are pushing HD as one of their key advantages over terrestrial competitors.

The commitment the two satellite operators are making to offer HD channels will be a win for their consumers and eventually should be a winner for the companies as the offerings bring in more subscribers willing to spend the money to receive the HD signals.

But some analysts are concerned that the investment that must be made to provide the service may be more than expected.

“That may not be good news for investors,” Craig Moffett, vice president and senior analyst, U.S. cable and satellite broadcasting, for Sanford C. Bernstein & Co., said at the ISCe Satellite Investment Symposium. “They have to swap MPEG-2 for MPEG-4 in order to have the capacity for all the HD channels that are being demanded. That will be billions of dollars in investment more than expected to make the conversions, and it will turn the company cash flow negative. … Consumers want this, but investors don’t.”

Capitalizing on HD may mean some short-term pain for investors, but it is essential for the satellite industry to make the move in order to combat growing competition on all fronts, says Hill.

“It is the duty of TV executives to make the switch to combat the Web,” says Hill. “It will be tough answering shareholders if the switch isn’t made.”