Tuning up for HDTV

Future of television is coming into focus, revealing new vistas for the industry--but also some zits.

When Riddhi Patel watched her first high-definition television show, one of her suspicions about celebrities was confirmed--they aren't as glamorous as they seem on regular TV.

"It was really amazing. I could see the pimples on the faces of some stars. They really cake on the makeup for the Academy Awards," quipped Patel, an analyst at research firm iSuppli.

News.context

What's new:
It's a new season for HDTV, with a lot more excitement, as high-definition content evolves to keep pace with sales of top-end TVs.

Bottom line:
Despite the impressive developments, consumer confusion about the technology and high prices still spell delays for the high-definition future.

More stories on HDTV

Patel isn't alone. Millions of viewers are discovering new depths and surprises in the old "boob tube," thanks to a long-planned transition from analog to digital transmissions. At the same time, the future of television itself appears to be coming into razor-sharp focus. And it's revealing new vistas for studios, manufacturers and broadcasters--but also some warts, particularly for consumers eager to jump on the trend early.

The new style of television uses digital rather than analog signals and has the potential to be much clearer than old-style TV, whether it's received via cable or over the air. High-definition television (HDTV) is the type of digital TV (DTV) that offers the highest resolution available, above standard-definition and enhanced-definition TV.

DTV and HDTV have been stalled in the wings for years. They're now gaining momentum, thanks to a confluence of forces, including a long-standing federal mandate to shift over-the-air TV broadcasts from analog to digital signals; improvements and lower prices in display and digital storage technologies; heated competition between satellite and cable TV providers; and Hollywood's growing acceptance of the inevitability of the digital evolution.

"There's still a lot of maneuvering, positioning and lobbying that needs to be done," said Michelle Abraham, an analyst at In-Stat/MDR. "But there's no way it's not going to happen. It's just a matter of timing and what kind of effect it will have on the consumer."

Perhaps most significantly, the chicken-and-egg problem that had hurt both HDTV programming and device sales finally shows signs of cracking. Manufacturers were reluctant to invest in HDTV sets without HDTV shows to watch, while programmers didn't want to make the shows before the consumers had the appropriate sets.

Despite that foot-dragging, adoption is picking up speed.

Shipments of digital televisions increased 113 percent, from 1.7 million units to 3.7 million units, from 2002 to 2003, according to iSuppli. Sales estimates predict even faster year-over-year growth this year, up 134 percent to 8.6 million units. Compound growth over the next four years is expected to reach about 46 percent, from 8.6 million units this year to 38.8 million in 2008.

Those sales figures are helping motivate cable operators and broadcasters to fulfill the other half of the digital-TV promise: delivering programming in formats that can take advantage of new devices and high-resolution screens. Commitment to high-definition programming hit a new high this summer, with special high-definition broadcasts of the summer Olympics on NBC.

"New life has been pumped into the DTV transition," Federal Communications Commission Chairman Michael Powell told Congress last week in a written report on the progress of HDTV. This summer, he said, 1,445 DTV stations were on the air, compared to fewer than 200 just three years ago. "High-definition content is booming. Cable has gone from virtually no HDTV programming to offering HDTV service to 84 million homes nationwide."

Federal mandate
Powell has been adamant about the transition from over-the-air broadcasting to digital television, and many of the agency's actions have rippled throughout the industry, getting the ball rolling toward major changes in programming and manufacturing. Powell's reasoning is that the radio spectrum used to broadcast television programming is underutilized and would be better served through reallocation to new wireless uses and public-safety networks.

About 80 percent of consumers currently use cable or satellite services for their television needs. Over-the-air television uses lower bands of the spectrum, which are valuable, because they can travel farther than bands in the upper regions. By freeing up those bands, the FCC can auction off that spectrum, which could be used for new services, such as wireless broadband.

To encourage the transition, the FCC has adopted new rules, including deadlines for manufacturers to incorporate cable card slots into new television sets; for shutting off over-the-air programming for broadcasters; and broadcast flags for content protection.

Now the FCC must figure out a time frame to mandate that over-the-air broadcasts must be turned off, clearing the way to auction the spectrum. The latest proposal is to have 85 percent of households using digital television by Jan. 1, 2009. The previous deadline was January 2007, but that has been determined to be too early.

"2007 was unrealistic--2009 seems more realistic, given the current momentum, and (the industry is) more than on track," said Jim Sanduski, vice president of visual products at Samsung Electronics.

Maker's mark
The transition to digital television comes as the industry has moved from cathode ray tube (CRT) sets to flat-panel screens with liquid crystal displays (LCDs), plasma and projectors.

Nowhere is this more evident than at Sony Electronics. Although the company was at first reluctant to walk away from the high profit margin of its CRT-based businesses, it has embraced the new technologies. Recent hits for the consumer electronics giant include the rear-projection Grand Wega, which sells at retail for between $2,800 and $10,000, depending on size.

Other manufacturers, such as Sharp Electronics, Panasonic and Samsung Electronics, have also intensified their television efforts and have started pumping out larger sets in high quantities, which has helped bring down prices.

Prices differ dramatically, depending on the size of the screens and the technologies, but for the most part, they're all decreasing. Plasma has been the more popular of the technologies, and prices for plasma TVs with screens 40 inches and larger fell 24 percent last year to this year, from an average of $5,320 to $4,020, according to iSuppli data.

"As price falls, adoption ticks up."
--HDNet founder Mark Cuban
says HDTV's growth
will be a familiar story.

Some of the new large flat-panel TVs have built-in set-top box capabilities, simplifying the reception of DTV and HDTV signals. Customers insert a security card, or a cable card they get from their cable operator, to decrypt scrambled cable signals on the sets.

As more consumers buy devices that use digital content, all the various trends will feed into one another, according to Mark Cuban, .

"HDTV is no different than DVD, PCs, the Net and other technologies. As price falls, adoption ticks up," Cuban wrote in an e-mail. "HD televisions follow the PC price/performance curve, plus you have the sex appeal of LCD and plasmas, so as prices plunge, adoption rises."

Critical content
Further fueling HDTV adoption is the arrival of high-quality HD programming onto DVDs as well as cable, satellite and broadcast networks.

After initially complaining that they were being pushed into a market with little consumer interest, networks such as the Discovery Channel, ESPN, HBO, Showtime and Bravo are upgrading parts or all of their programming into high definition. That's on top of the 1,292 national and local stations offering digital broadcasts, according to the National Association of Broadcasters.

"This is the biggest change in televisionland since color in the early to mid-1960s," said Jeffrey Yorke, a spokesman for NAB.

TV networks and cable providers are still crunching the numbers to figure out the short-term business opportunities related to high-definition broadcasts. That isn't stopping programmers from planting stakes in new territory before competitors do, even if costs outweigh revenue.

"It's early in the game, so I think revenue will come," said Clint Stinchcomb, senior vice president of Discovery HD Theater, which launched in 2002. He expects revenue to come from advertising and shared fees from cable subscriptions.

Cable providers such as Comcast and Time Warner Cable, and satellite services like DirecTV, are also beginning to dip their feet into high definition--moves that are accelerating, thanks to increasing competition between the two.

DirecTV, currently in a fierce market share battle against cable providers, has ramped up plans to tap into the high-definition market. The company last week said it would launch four new satellites to boost HD signals into homes. Two satellites will launch in early 2005, with service beginning midyear, and two more in 2007.

That could force cable companies to increase their own high-definition efforts, which have been limited so far but are gaining steam.

As of June 30, Time Warner Cable had 10.9 million cable subscribers, of whom 4.6 million were receiving digital service. By contrast, just 328,000 subscribed to HD programming. The company offers customers new set-tops at no additional charge upon request, but it is not aggressively marketing the service.

Comcast, the largest cable provider in the United States, has 21.8 million basic subscribers, of which 8.1 million have digital cable. Only 600,000 customers use its high-definition service, which includes an extra fee for set-top rental and installation.

DVDs and the anticipated popularity of high-definition recording technology, such as Blu-ray, could also help fuel demand for HDTV displays, according to iSuppli.

Buyer beware
If things are picking up for HDTV makers and programmers, consumers are still only on the cusp of accessing next-generation television. The leading-edge nature of the emerging technology means that TV viewers and buyers are susceptible to a misunderstanding of what's capable with products.

"There's still a lot of consumer confusion out there," Abraham said, citing the different types of digital television available, from standard-definition to high-definition DTV, as well as the question of whether people need digital tuners. "And there's still the foremost concern: price. HDTVs are still about twice as expensive as similarly sized analog sets."

"There's still a lot of consumer confusion out there. And there's still the foremost concern: price."
--Michelle Abraham, analyst at In-Stat/MDR

Another wild card could be shaping up over antipiracy measures pushed by entertainment companies and TV broadcasters that would limit the use of digital recordings.

The FCC has required consumer electronics manufacturers to build in antipiracy technology that recognizes a "broadcast flag" from DTV signals. Once the devices pick up the flag, the devices will be limited in recording quality and blocked from transfers onto the Internet devices.

Earlier this year, a coalition of public advocacy groups filed a lawsuit against the FCC, claiming that the commission has no authority to set rules for content protection.

"The main reason (for the lawsuit) is, we don't think the FCC has the power in communications law to adopt the broadcast flag," said Gigi Sohn, president of nonprofit group Public Knowledge, which helped file the suit. Other suit participants include the Electronic Frontier Foundation and the American Library Association.

Despite such reservations, DTV makers such as Samsung said they are committed to giving consumers their money's worth.

"Yes, you may have a perfectly good TV, but we're going to give (consumers) a reason to upgrade...picture quality, form factor," as well as lower prices and new content from cable companies and broadcasters, Samsung's Sanduski said.

Add all that up, and consumers may have enough reasons to watch the HDTV transition--that and counting the number of blemishes on the faces of the celebrities.

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