Repackaging Cable HDTV

Repackaging Cable HDTV
By Mark Kersey, President
BuyingHDTV.com
Originally published in March edition of The CTAM Magazine (Cable & Telecom Assoc. for Marketing)

If there is one thing that cable operators, programmers, broadcasters and the consumer electronics industry can all agree on, it’s that the HDTV revolution – which is still very much in its infancy – is the most significant advancement of the television industry in at least a generation. Not since the transition from black-and-white to color has the TV itself been so squarely in the middle of such a dramatic transformation. The move from analog to digital technology impacts literally every facet of the video services business, but it has so far produced many more questions than answers on issues such as must-carry, digital rights management and the future of the now ubiquitous set-top box.

All of which are far too complex to address in this space. What I would like to focus on is how the cable industry – specifically operators and programmers – can get ahead of the HD revolution by offering content in a way that transcends past traditions.

Let’s start with what we already know. Of the roughly 16 million digital televisions the Consumer Electronics Association says have been sold since 1998 (including 7.2 million last year), we know that many of them are not receiving HD service from a cable or satellite provider. It’s difficult to say exactly how many choose to receive their digital signals over-the-air – or just use their new big-screen to watch DVDs – but most estimates conclude that fewer than half of all HDTV owners subscribe to HD service. That’s a substantial missed opportunity for HD service providers and programmers, and unlike a year or two ago, the gap cannot be blamed on HD service availability, as the NCTA reports that high-def programming is available to 90 million cable homes passed in 177 of the nation’s 210 TV markets.

One of the factors often cited in consumers’ slower-than-anticipated transition to digital television is the lack of HD content available for viewing. However, BuyingHDTV.com’s research shows that there are 25 national HD networks available through cable, along with a host of smaller regional channels such as sports networks and independent broadcasters. While the quality of the content varies widely, there is plenty of good programming available on networks such as Discovery HD Theater, ESPN HD, HDNet, INHD and others.

Our research shows that ESPN HD and HBO HD are the most-carried cable channels in high-definition, with 100% of the cable companies in the top 25 U.S. markets offering those two channels in HD. NBC is carried in high-definition on 98% of the cable systems in the top 25 markets, while FOX is on 96% and Discovery HD Theater is on 94%. Several channels available in high-definition are carried on fewer than half of the cable systems in the top 25 markets, including HDNet and HDNet Movies (44% each), TNT HD (18%), Universal HD (10%), The Movie Channel HD (2%) and Encore HD (0%), indicating that the industry still has considerable work ahead of it in delivering a full slate of HD channels to its customers.

What MSOs need to do is rethink the way they package their HD offerings. Most cable companies charge an HD set-top box monthly lease fee of $5 to $10, which includes a number of HD networks, typically the local broadcast stations. However, many MSOs also offer a separate HD tier that often include channels such as Discovery HD Theater, ESPN HD, HDNet/HDNet Movies and INHD/INHD2. Premium channels such as HBO HD and Showtime HD are available if a customer also subscribes to that premium channel’s multi-screen packages.

The problem with this tiered approach is two-fold: First, it nickel-and-dimes consumers who have just spent thousands of dollars on a new HDTV. Second, it assumes that even if they’re willing to pay for the HD tier, consumers know to ask for it. As an example, my cable company – Adelphia – offers ESPN HD on a separate tier for $1.50 a month. However, to actually subscribe to ESPN HD, I have to physically call an Adelphia service rep and have the channel added to my package. I’m all for customer choice, but I believe that most customers who have an HDTV and are willing to pay $9.95/mo. for the HD set-top box would be perfectly happy if the lease fee were just raised a few bucks to include all the best HD channels available.

The other problem with the tiered approach is that many cable customers are not even aware that a separate HD tier exists. Again using anecdotal evidence, I have a friend who uses Time Warner Cable’s HD service but didn’t subscribe to the HD tier featuring ESPN HD, FOX Sports Net HD, HDNet and INHD. The issue wasn’t that he and his wife didn’t want these channels or that the extra $6 a month would break the proverbial bank; they just had never made the call to Time Warner to get them added. After some encouragement from me, they ordered the HD tier. Time Warner and the other MSOs should include all the HD channels standard by eliminating separate HD tiers (and increasing the monthly HD service fee by $3 to $5 a month if necessary). Comcast is setting an example by including all HD channels except premiums with its standard HD set-top lease, and the rest of the industry should follow its lead.

In the final analysis, we are just at the beginning of the HDTV revolution and there is much more to be learned about what consumers expect from their HD service providers. The good news is that there is plenty of time for the industry to experiment with different pricing and packaging options, and clear winners will emerge over time. Odds are that the most successful HD marketing strategies will be those that require little effort from consumers; in other words, those that minimize complexity and maximize value. As is often said, keep it simple. Your customers will thank you, most likely with their wallets.