HD: Customer Demand Fueling Operator Ambitions – EXTENDED

While HD is the future, the spread of the service has varied around the globe. Has HD entertainment lived up to industry expectations or been somewhat of a disappointment to date?

HDTV continues to be seen as a major growth driver for satellite operators around the globe. The number of HDTV channels grew by nearly 170 percent between the end of 2006 and May, according to the Satellite Industry Association’s “2009 State of the Satellite Industry Report.”  There were 1,492 HD channels broadcasts around the globe at the end of May, compared to 556 HD channels at the end of 2006. About 60 percent of those channels serve the North American market, according to the study, with the remaining channels primarily broadcasts to the European and Asia-Pacific markets. IMS Research says its it expects total worldwide HDTV households to reach 255 million by the end of 2013, with DTH to be the market leader, serving 38.1 percent of these households. Cable is expected to be second with 26.5 percent of households and IPTV third with 12.3 percent. French research company Idate expects really strong growth over the next four years, and by the end of 2013, it expects there will be nearly 250 HD channels being broadcast, including pan-European channels being distributed in the six largest markets in Europe, according to “Which Network to Deliver HDTV in Europe.”

Broadcasters

For broadcasters, the move to provide HD channels is now in earnest and for some is the focal point of their growth strategy. Bhavneet Singh, managing director and executive vice president, emerging markets, MTV Networks International (MTVNI), says HD is a “key priority” for the broadcaster. “HD is very important to us, as it is to many broadcasters, and we feel that MTVNHD really strengthens our global portfolio of assets. Entering the high-def universe is a natural next step in our growth as a premier global media company. MTVNHD further deepens our audience connection as we continue to refine and expand the way we develop, package and deliver quality content.”

MTVNHD is on 40 platforms around the globe, including many cable, IPTV and DTH platforms. “One of our key priorities is to build scale and depth with MTVNHD, and one of the ways in which we can do this is by continuing to build this in countries where the service exists and launching into new markets. By the end of this year we’re aiming to launch MTVNHD in another eight new markets, including Austria, Brazil, Croatia, Italy, Mexico, Peru, Portugal and Spain. Further down the line, and where it makes business sense, we will look at the existing portfolio of MTVNI’s SD channels to see if there is potential to launch our non-music portfolio of channels in high definition in markets that have a high demand for HD and good take up of the technology,” he says.

David Haslingden, CEO, of National Geographic Channels International, National Geographic Channel (NGC-US), Fox International Channels (FIC) told Via Satellite that he expects many more platforms to “find religion” with HD. “In 12 months time, I’m confident I will be in a position to tell you that many more multi-channel operators found religion in HD.  I think you’ll see platforms embracing HD, either because they recognize the competitive advantage of being first or the competitive necessity of catching up. I expect customers will renew their love for television and increasingly wonder why they ever watched anything that wasn’t in HD.  And I dare say you’ll see a lot of happy satellite operators writing business,” he says.

Although this not always been the case. Some broadcasters have shown a reluctance to move to HD. Chang admitted that when DirecTV started out down the HD road, some definitely needed a push in this direction. “It was somewhat of a struggle to get some of the content providers to put up HD content. A lot of them were thinking about it and some had it on their road map, but I don’t think initially they were thinking about it in the same time frame as we were. We said to these guys that at some point, this is going to be the standard. That got a lot of them to step up to HD,” he says.

FSS Players Seeing Gains

For satellite operators, HD remains a strong growth opportunity. Intelsat is seeing the demand for capacity for HD channels significantly increase. “We have approximately 160 HD channels on our satellites. This is up from approximately 80 channels this time last year. The economic crisis means we have seen a little bit of a slowdown in terms of new HD channel launches in 2009, even though we saw a lot of bullish activity last year,” says Tim Jackson, Intelsat’s vice president, media product management. Eutelsat says it has seen growth of HDTV channels broadcast by its fleet rise more than 75 percent in the past year from 49 channels to 86 at the end of June. Among the major platforms that have launched HD services on Eutelsat are Sky Italia, Cyfra +, Cyfrowy Polsat and NTV+ and the arrival of new services including Russia’s Platforma HD.  SES platforms were delivering 136 HD channels around the globe at the end of April. SES Americom-New Skies accounts for 67 of the channels with its HD Prime platform that serves the United States, with SES Astra delivering 69 channels in Europe.
Intelsat sees strong growth for HD channels continuing, says Jackson, “We are seeing strong activity in both Latin America and in the Asia-Pacific region. Countries like Japan and Korea in particular are showing good activity. We also are seeing a good ramp-up of activity in Latin America and expect that region to have a strong year in 2010. A great example of this is with global programmers moving high-quality content to multiple regions.”

Eutelsat equates its growth in broadcasting HD channels to adding 100 SD channels, based on the comparison that HDTV broadcasting requires 2.5 times more bandwidth than SD digital TV channels. This ratio has all broadasters looking at ways to make broadcasting HD more efficient, and Jackson says advancements in compression technologies is making HD a more vibrant market. “We are seeing technologies such as MPEG-4 and high order modulation technologies like DVB-S2 becoming more mainstream. The interesting thing about MPEG-4 is it does allow programmers distributing in HD compression savings. The consumer devices are very high-quality sets, so for the first time, you have people with television sets in their living room that in some cases exceeds the quality of sets that professional engineers use for monitoring. The days of programmers being able to overly compress a signal in order to save money by jamming a lot of content into a transponder are diminishing. Everyone realizes you have to send a high-quality signal,” he says.

Ateme, a French technology company, is trying to take advantage for this demand for HD content, and Michel Artières, the company’s CEO, says Ateme is “seeing a lot of activity in the IPTV and satellite-IP hybrid space with operators expanding or launching their HD services and so requiring an H.264 solution that gives them the best use of bandwidth and video quality to do so.” In terms of where it can make a difference for satellite players, Artières says, “We expect to see exponential growth in the amount of HD content being made available over the coming year as HD becomes the standard for all new content. Meanwhile, services such as will increasingly be offered in BluRay quality as more and more consumers have the right devices to view content in this quality.

Pace, which supplies set-top boxes to satellite pay-TV operators, says the majority of set-top boxes it now ships are HD. “In the first half of 2009, 57 percent of the boxes Pace shipped were HD. In the second half of this year, we’re expecting this to rise to 80 percent. If you look at our numbers, you will see shipments of SD [personal video recorders] begin to tail-off as the demand for HD products rises. Many of our existing customers are now talking to us about phasing out SD products completely as part of their transition over to HD,” says CEO Neil Gaydon. He expects Pace to have a banner year in terms of HD shipments in 2010.  “Despite the concept being around for some 20 years, the pace of HD growth has been relatively slow. Only now has all the technology come together at affordable price points for HD to work such as studio acquisition, data management, uplinks, satellite capacity, set-top boxes and applications. Pace understands the operators’ time scales and we are now seeing them vigorously launch HD services in higher volumes. Shipments of HD products in 2010 will be significantly higher.”

Direct-To-Home Leaders

The United States remains at the forefront of HD broadcasting to the home. DirecTV and EchoStar have huge numbers HD channels available. According to Derek Chang, DirecTV executive vice president, content strategy and development, “HD is no longer the next new thing. It has become the standard that our customers expect.” The numbers of HD channels DirecTV could have in the near future will be in the hundreds. “We have over 130 HD channels, not including local channels. We will launch a new satellite this year, giving us the total capacity to broadcast up to 200 HD channels.”

In Europe, BSkyB, with more than 30 HD channels, and Canal Digital in the Nordic region are setting the pace in terms of the launch of HD. Christian Albech, Canal Digital’s CEO, says the platform has made HD a fundamental part of its growth strategy. “Our main strategy has been to convert from standard TV to HDTV. Ten years ago, we went from analog TV to digital TV. We have exactly the same strategy this time. We want to be the first to really move from SD to HDTV. In Europe, only BSkyB has more HD channels than us, so we will follow up on that. We have 12 international HD channels, many of them exclusive, which is part of our strategy. We have eight national HD channels. Most of them are exclusive. SD channels are now a secondary consideration for Canal Digital, which in 2007 put all of its HD channels into the company’s basic family package and increased the price 50 percent.  “Over the next two years, we plan to reduce the number of SD channels. We have 20 HD channels now. We would like to add around four more HD channels in the next 12 months but it will depend on what will be developed by channel suppliers. We want quality content.”

However, others in Europe still have not launched HD services. UPC Direct, which operates in the Czech Republic, Slovakia and Romania and has around 500,000 subscribers, says it will not likely launch HD services until 2010, having seen other operators in Central Europe, find the move to HD difficult. “In our markets, we have seen two operators launch HD services, but at least one of them has not been particularly successful. We will look to provide HD services going forward, but we do not have an exact timing right now,” says UPC Direct Managing Director Magnus Ternsjö. “I think it is likely we will have some HD services in 2010 in the second half of the year. We are likely to launch HD services first in Hungary, the Czech Republic and Slovakia.” Ternsjö admits the operator has been holding back the launch of HD services. “The only reason why we are holding back is we want to see a higher density of HD set-top boxes out there. I think next year the volume of set-top boxes will be greater, plus the cost price of these boxes will also go down. HD will then become important. It is just a matter of when.”

Scandanavian operator Viasat Broadcasting has launched HD services in the Baltic region (Latvia, Estonia, Lithuania), beginning with National Geographic HD. Ulrik Bengtsson, the company’s CEO, pay-TV emerging markets, says the time was right for the operator to launch services “We are not sure the size of the target market for HD services in the Baltic region, however, most TV sets being sold are HD-ready. For us, it is a large enough volume of the installed base to address. We have a customer base that is more tech savvy than the traditional terrestrial user. We are the first ones to launch HD in the Baltic region, which is different from our situation in Scandinavia.” In Turkey, DigiTurk, the leading pay-TV operator with 2.3 million subscribers, is ramping up its HD activities with five channels and a sixth planned. “Introducing HDTV will help to gain new subscribers resulting in a larger subscriber base. It will also help to gain or to retain subscribers in the upper demographics. Introducing HDTV in its early phase will help us to limit churn to the minimum while the market matures and HD progressively becomes a new broadcasting standard. HDTV will likely be profitable in the middle term but requires significant initial investment costs,” says Berkman ÇavuÅŸoÄŸlu, vice president, sales and marketing, DigiTurk.

Still in the Early Phases

In Asia, the story is mixed, with some platforms far more advanced than others. SkyPerfect JSAT of Japan  is predicting strong growth in the numbers of HD channels it intends to offer customers. In July, the operator offred 18 HD channels. By October, it will ramp up to 60 HD channels, with a projected 70-plus in 2010. Others operators are not as advanced. In Malaysia, the pay-TV competition centers around DTH operator Astro and Telecom Malaysia, which is launching IPTV services later this year. Astro has not yet launched HD services, but CEO Rohana Rozhan says they definitely are on the operator’s road map. Telekom Malaysia hopes to have at least two to three HD channels at launch. “There is not a lot to choose from, but we are definitely on the lookout for more HD content. We are trying to get as much HD content and material as we can, both for our linear channels and our non-linear channels, such as our [video-on-demand] services. We believe that HD content and interactive services will make the difference for us,” says Telekom Malaysia Vice President Jeremy Kung.

The goal for many operators in the region is develop a strong subscriber base for SD services before moving to HD. Benjie Fernandez, managing director of Mediascape, a DTH platform in the Philippines, says, “If we want to target the premium market, then HD would be important. We are doing the mass market right now. I think at this point, we know the set-top box costs and the bandwidth we will utilize. What we will see is how content providers price their channels. We are consciously monitoring the HD market. There is a high interest from us to offer these services. In terms of when we launch HD services, this will really be driven by the plans of content providers. They are starting to pick up.”

In Latin America, Brazil is expected to be one of the main growth markets for pay-TV services, with one of Brazil’s main telcos, Embratel, dipping its toes in the pay-TV space and launching a DTH service which already has 100,000 subscribers. “We think in 2011, there will be 500,000 HDTV-ready households in Brazil,” says Antonio Joao, executive director of Via Embratel. “We have plans for HD and PVR in 2011.The key question is about the availability of content. Today, local broadcasters are starting to produce local content in HD for the pay-TV market. We are seeing international content also being produced in HD, but the production of HD content here only started 12 months ago. We hope to have around 10 pay-TV HD channels. There could also be a further number of HD channels available from local broadcasters. We don’t think we will need extra capacity from Star One than the C2 satellite to serve the market in terms of HD.”

Bottom Line

HD is happening, perhaps not has fast as people thought, but it is here. Some operators are adopting a more cautious approach, and even in some established markets in Western Europe, you can count the number of HD channels on satellite pay-TV platforms on one hand. But progress is being made. Broadcasters are producing more content, and as more HD-ready equipment makes it way into homes, operators will be compelled to launch HD services to keep ahead of the competition.