Hospitality Moves to HD: Get Ready!

In the aftermath of the recession, U.S. markets slowly are regaining force. It has been no different in the hospitality market. With more than 50,000 hotels and 5 million rooms in the United States, this represents a sizeable revenue opportunity for the cable operator when it comes to the demand for HDTV services.

Amenities become a key differentiator among all hotel chains. Free continental breakfast, free parking, free Wi-Fi or HBO channels on cable are just some examples of what attract customers to a specific hotel instead of the one across the street.

For some time now, it’s been said that “HD Free-to-Guest” is the new HBO in terms of key amenities for hotels. But what does it really mean? And more importantly: What’s in it for the cable operator?

HD Free-to-Guest is a hospitality term used by hotel system integrators for providing HD content to guest rooms free of charge; this includes local, national and premium channels. Because this feature does not directly generate any revenue for hoteliers, capital and operating costs become a prime concern.

Such system integrators as LodgeNet, World Cinema, Bulk TV and others have been diligent at reducing cost to win more hotel business, yet the cost in many cases to hotel operators to install HD in their facilities has been in excess of $1,200 per HD channel. Most hotels upgrading their rooms with HDTV will carry between 40 and 60 digital channels, of which they will offer between 12 and 24 HD programs. This represents a capital investment that can exceed $50,000 per hotel — a significant barrier to entry for many hotels, considering return on investment (ROI) mainly is proportional to the number of guests staying at their facilities.

DirecTV and Dish Network own more than 60 percent of the hospitality market, which leaves MSOs in a ‘catch up’ situation.

Further, Hollywood studios have mandated that the hospitality market protect HD content for premium channels to avoid content piracy or copyright infringement. Consequently, LG Zenith introduced Pro:Idiom to address this security concern. Pro:Idiom technology was developed to provide a robust, highly secure digital rights management (DRM) system for distribution of all digital content. U.S. hospitality industry giants have adopted this technology, making it the commercial encryption standard.

It should be noted that premium video services in this market have been largely dominated by two satellite providers in the United States: DirecTV and Dish Network. Together, these two operators own more than 60 percent of the hospitality market, which leaves cable operators in a “catch up” situation. Large hotel chains have been “first movers” and already have begun to upgrade their rooms with HDTV sets and HD content, bringing additional pressure to bear on MSOs.

Some video-equipment manufacturers recognize the challenge MSOs are facing in the hotel market, and they have developed products that incorporate Pro:Idiom technology. The products are designed to enable cable operators to extend their HD offerings to hotels while simultaneously eliminating the need for hotel operators to support set-top boxes in the guest rooms. This is an interesting value proposition, as cable operators can leverage their existing network infrastructure and are well-positioned to deliver more HD programs and to reduce subscriber churn.

This becomes a win-win situation, as cable operators have an opportunity to gain market share while enhancing their customer bases. For hoteliers, this is an opportunity to reduce capital expense and to remain competitive by offering the amenities guests have come to expect while traveling.

The work already has begun in earnest among the large cable MSOs, and the race to capture a portion of this market during the next 12 to 24 months will be, without a doubt, very exciting, which leaves only one question for cable operators: Are you ready?

Gabriel Joseph is director/Business Development at Vecima Networks. Contact him at [email protected].