There is no doubt HD is the future of TV. HD is a key driver for new premium revenues and a hook for high-end subscribers, it’s becoming standard in free-to-air TV broadcasts and the number of HDTV-enabled households is rapidly growing.

“Yes, we see a migration from SD to HD similar to the transition from broadcasting in black and white to color,” said Gil Katz, senior director of Cable Solutions and Strategy at Harmonic Inc. “I would anticipate that most of the channel lineup will be HD in about two years time.”

In many ways, HD is not standard, and here’s why: The FCC still considers even the most basic set-top box with HD support to be a smart box requiring expensive encryption; most so-called HD households still have plenty of SD TVs that are not going away any time soon; and the transition is further complicated by consumer challenges in figuring out how to make the channel lineup work on their new digital HDTVs.

As Katz noted, “Legacy considerations in cable networks will mean that, for some time, operators will need to simulcast SD side by side with HD, in MPEG-2, with a longer-term transition to MPEG-4.”

HDTV excitement has been building since its first public broadcast in North Carolina in 1996. Initially, it almost was a gimmick until the early 2000s, when the Digital Video Broadcasting group formally adopted HDTV standards. Once the standards were in place, over-the-air TV broadcasters were supposed to make the transition to digital in 2005, but they dragged their feet all the way to 2009, when analog TV officially shut down.

This lag gave HDTVs a chance to come down in price, thus driving consumer adoption for the new format. Cable operators, satellite providers and such telcos as Verizon and AT&T have begun competing to expand their HD service line-ups, realizing it can be a competitive differentiator to attract high-end customers likely to spend more on high-tier channel line-ups and on-demand services.

According to ABI analyst Michael Inouye, “The market has moved toward HD for North American cable in general.” He estimated that around 7 million of the 19 million cable boxes that shipped last year supported North American HDTV.

Who’s Outdoing Whom?

At first, there was considerable hype around which provider had more HD services, and providers would one-up each other by expanding their line-ups. “But it is less of a differentiator now,” Inouye noted. All of the major video providers now top or nearly top 100 HD channels, according to the AV Sciences Forum, which has been tracking the competition for some time (for more information, go to http://www.avsforum.com/avs-vb/showthread.php?t=1058081). Verizon leads the pack with 165, followed by AT&T (160), Time Warner (150), Comcast (138), Dish (123), Cox (90) and DirecTV (88).

With limited channel line-ups, operators are finding other ways to out-HD each other. The cable and telco terrestrial providers are promising thousands of HD choices on demand, which they can offer thanks to local servers in their headends that transmit individual feeds to a consumer’s home.

However, satellite providers can’t keep up with these extensive lineups because their bandwidth is shared nationwide (compared with a cable headend’s smaller footprint). Consequently, they have adopted a different strategy to offer higher-quality 1080p HD on demand for a few premium movies. These are delivered in the wee hours of the night to special satellite set-top boxes with digital video recorders (DVRs).

In theory, 1080p (progressive) refreshes each line every cycle in order to provide twice the resolution of 1080i (interlaced), which only refreshes every other line — but this is the case only if the consumer has the right TV. At the moment, the only other way to get genuine 1080p video is through Blu-ray discs or special IPTV set-top boxes.

On the other hand, higher quality isn’t not a sure bet over variety when it comes to consumer decision-making. Just look at the explosion of the iPod and the growth in the market for lower-quality MP3 music at the expense of higher-quality CD music. As a result of this transition, industry research has found that the market for all music has shrunk from $14.6 billion in 1999 to $9.2 billion in 2008, CD sales are contributing a smaller and smaller share.

Nothing’s ‘Standard’ Yet

A big part of the debate over what constitutes a standard is the Federal Communication Commission’s definition of “advanced” and “basic” set-top boxes. Currently, the FCC considers any set-top box that provides HD service to be an “advanced” set-top box, requiring a separable security based on the CableCARD standard.

While this “standard” was intended to help drive down the cost of consumer equipment, it actually has had the opposite effect, said Brent Smith, president of Evolution Digital, who explained that, for a variety of technical and marketing reasons, operators end up spending $250 per box to get CableCARD-enabled set-tops compared with between $30 and $40 for a basic SD digital box.

“The FCC has been on the fence as to whether HD is an advanced or basic service,” said Smith. “When the FCC wrote these definitions, HD was seen as a unique advanced feature. Now that broadcasters have converted to HD, it is hard to see how they could classify HD as an advanced product.”

The commission has granted a few waivers for digital HD set-tops on a system-by-system basis, but this is both time-consuming and expensive, especially for smaller operators. Today, equipment vendors are trying to get FCC exemptions for basic HD-equipment that would allow any operator to provide basic service with integrated conditional access security. In June 2009, Evolution Digital submitted another waiver request for low-cost HD-boxes. “If the FCC decides to qualify HD as a ‘basic’ functions, then these boxes could be deployed into the network to support low-cost HD services,” said Smith.

Massillon Cable has been one of the pioneers in transitioning from analog to digital; and it was one of the first cable operators to get a waiver for digital SD set-tops, which allowed it to reclaim bandwidth for adding another 70 HD channels. However, the cableco was surprised to discover how many of its customers still were clinging to analog TVs. As such, Massillon needed to distribute some 100,000 digital adaptors to its 47,000 video customers.

Bob Gessner, president of Massillon, said even customers with new digital TVs had been watching analog because they didn’t know how to program their new sets to receive digital broadcasts. When their new TVs first were installed, customers saw a larger picture that looked nicer than the picture on their existing 20-year-old TVs. They thought to conduct a channel scan because the analog video was already there on the screen.

So, when Massillon finally cut all analog services, a lot of digital TVs went dark. “That took us off guard because we did not realize that so many people were watching analog channels on their digital TVs,” Gessner said.

Tradeoffs

There is no doubt HD will become the new SD, but the transition will be a bumpy one, forcing operators to mull over many options. In the complicated calculus of cable profits, they must balance the technical tradeoffs in offering more channels, more video-on-demand and higher quality with keeping the lives of their “basic” customers simple.

As Ludovich Milin, manager of Cable Product Marketing at BigBand Networks, explained, “The implications of continued growth in HD and rollouts of 3D will require greater focus on digital video networking/video processing technologies, which can cost-effectively accommodate these bandwidth intensive services and ensure high-quality video experiences. Further developments for HD rate-shaping and HD ad splicing also will be needed.”

George Lawton is a frequent CT contributor. Reach him at glawton@gmail.com.

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