Some friends and I were discussing our various perspectives on HDTV (High Definition Television). In the words of a participant from the UK:

Sadly HDTV will be a crock. It always pays better to use the multiplex to send more game shows rather than good content (say 4 game shows to one Morse?) AQ can probably back me up on that one.

After writing a lengthy reply to him, I decided that this might be of interest to more people. So here is a discussion of why HDTV will succeed in the United States. I am deliberately trying to keep things simple for this discussion, so I will limit myself to a brief overview of the technology before I discuss the business case for High Definition Television.

First, let me define terms and technology. Standard resolution is what you see on traditional sets. In most of the Americas, Japan, and a few other places, we use the NTSC standard with approximately 480 lines of horizontal video resolution at 30 frames per second. In most of Eurasia and Australia, they use PAL with about 576 lines of horizontal video resolution and 25 frames per second. If you are used to PAL, NTSC television looks wrong because it has lower resolution than PAL. If you are used to NTSC, PAL looks cheap because it flickers. (The amount of light in a room also impacts whether or not a person perceives flicker. This is why movie film uses 24 frames per second. Film is expensive and way back when it was invented Thomas Edison figured out that 24 frames per second was as slow as they could safely go, in a dark room, without people seeing flicker). The brighter the room, the faster the images must be displayed in order to prevent most people from seeing flicker.

High definition is mostly used to refer to resolutions of over 1,000 lines of horizontal resolution. The American digital standard (ATSC) uses 1080 lines of horizontal resolution for its highest resolution format. It also provides for a medium resolution format of 720 lines of resolution. Some folks (most those marketing sets that run at 720 lines of resolution) also call this high definition.

Television can be transmitted in analog format or digital format. This is independent of whether or not it is standard definition or medium definition. For example, the Japanese invented high definition analog television decades ago. However, when an American standard was developed, it was decided to make it a digital standard. For the amount of bandwidth allocated for digital television, a broadcaster can transmit four channels at standard resolution or one channel at high definition.

One last set of terms and then I can proceed to the business case for HDTV. The Federal Communications Commission (FCC) has required terrestrial broadcasters (those who send out signals that you can receive via an antenna) to move to the digital television (DTV) standard by 2006 on a very specific timetable (non-public broadcasters in large markets were required to start broadcasting a few years ago). Since DTV (digital television) is a broad term that includes cable and satellite, the acronym DTT was developed and stands for Digital Terrestrial Television.

When the ATSC standard was developed, there was a lot of controversy over which video format to use. The FCC ended up mandating an audio standard (AC-3; otherwise known as Dolby Digital), but finally left the video format up to the broadcaster. The market will determine if broadcasters end up transmitting high-definition or standard-definition content. So let's look at the options from both a terrestrial broadcaster and a consumer perspective.

Given a choice between broadcasting a high definition channel or four standard definition channels, what has more market appeal? The last time I checked (about 5 years ago), 85% of American households already subscribed to cable, satellite, or both. Thus a few more channels is of very little market value from a consumer perspective. The terrestrial players (especially ABC, CBS, NBC, Fox, and PBS.) who despise what cable has done to their market share have a built in bias against splitting the TV market even further (with the exceptions being Fox and ABC whose corporate families include many cable channels - thus their initial support for standard definition).

Once the terrestrial broadcasters got passed their initial emotions and looked at the market, they saw they could collect very little by having additional channels. Sure, they could collect a bit more by having more channels, but at the cost of splitting their main audience even more. Instead, they desired a way to make their offering more compelling, to increase their audience size. So they are putting most of their eggs into HDTV. Not only does this make sense strategically, they win even when their competition imitates them with their own high definition offerings. For example, some non-terrestrial networks are offering HDTV via satellite and cable (e.g., HBO, Showtime, ESPN, Discover, etc.). Whenever a cable or satellite company provides this service, it prevents them from offering 4 other channels. (5 in actuality, because the service provider still has to offer standard definition HBO for most of their customers). So by making HDTV the new standard for quality, the terrestrial networks are forcing other service providers (cable, satellite) to either offer a lower quality offering or offer less programming (so they compete against less shows). Either way is good for the terrestrials.

Now the government is forcing the terrestrials to move from analog (NTSC) to digital (ATSC) by 2006. There is a lot of talk about giving the broadcasters more time, but I haven't heard as much of that recently. Part of that is because I'm no longer in the industry, but part of it makes business sense. Why run two expensive broadcasting systems (analog and digital) when only 15% of your audience only uses terrestrial reception? By law, the cable companies have to carry your signal anyway (and they'll convert it to analog) and the satellite companies also will continue to offer an option for old sets. So the smart move is to cut and run in 2006 and point all unhappy consumers to the government. The government can handle it (even if all 15% complained, the other 85% won't care) and can talk about all the benefits of freeing up the analog spectrum. But this is the only part of our discussion on American television where I am not sure of the outcome. 2006 is an election year (stupid planning on the part of the FCC) so congressmen and 1/3rd of our senators (six year term, approximately 1/3rd up for reelection every two years) may be very sensitive to complaints. So I wouldn't bet on 2006 even though it is the smart play.

In parts of the world where the average consumer has access to less than 20 channels, the case for HDTV may be far less compelling. These consumers may benefit more from more content instead of better content. Without question, content providers in these markets will make more money with more channels than by improving their existing content. However, once the majority of these consumers also have access to many channels, then the case for HDTV will also become compelling to them. The ready access of HDTV movies from America will also be a driver for the sale of HDTVs. (HD discs are not on the market yet; but they will be soon. I don't expect to see much publicity about them for a while because the content providers fear many people would stop buying as many DVDs and wait a few years to buy HD versions of their favorite movies.)

In summary, HDTV makes business sense in US environment where the overwhelming majority of consumers have access to many channels. It does not make business sense in parts of the world where the average consumer does not have access to many channels. As access to many channels goes up (and as the price of HDTV displays drops), the business case for HDTV improves.

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