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12.12.2006
Originally featured on BroadcastEngineering.com
Far fewer Americans receive HD service than own HDTVs, says researcher

Here’s a reality check: only 9.8 million TV households receive some form of HDTV programming out of the 25 million households that own HDTVs, according to In-Stat senior analyst, Converging Markets & Technologies Group, Mike Paxton.

Speaking last week in Los Angeles at the HD Technology Summit produced by Broadcast Engineering, Broadcasting & Cable and Multichannel News, Paxton said there are several reasons for the startling statistic.

HD Technology Update interviewed Paxton following his presentation to learn the reasons for this HD disconnect and to find out what the industry can expect in the future.

HD Technology Update: What accounts for the HD disconnect — the approximately 15 million owners of HD sets out of the 25 million in the United States with HDTVs who don’t receive an HD signal over the air, via cable, satellite, IPTV or some other means?

Mike Paxton: We see the HD disconnect existing today because of primarily three things: One, consumers who are buying HDTV sets are buying that set not because it can allow them to watch HD programming. They are buying it because it is a digital set that is an improvement over their older set.

Also, we are hearing from consumers that they really like the form factor. In other words, their purchasing decision is really being driven by non-high-definition-based attributes of the TV sets. That’s one reason that’s always very interesting to hear that.

We also find that consumers aren’t willing to pay additional fees for a digital set-top box or for a monthly HD service fee. That is something that really turns them off. So they are willing to buy the set, but when it comes to ponying up another $10 or $15 per month, they kind of draw the line and say it’s not quite worth it.

Finally, there still are a few people out there who are confused about what they are watching and whether it is actually HD programming. In other words, there are people who own an HD set and are watching standard definition programming while they think it is HD just because it says “SportsCenter HD” or whatever the case may be. In other words, they don’t know.

That number — the percentage of consumers — is getting smaller every year, so there is an educational process at work and it is succeeding. But in terms of the HD disconnect, that gap between installed base of HD sets and HDTV service users, those are the three primary reasons.

HDTU: What are major challenges to further growth of HD penetration?

MP: That disconnect also applies to why people are not signing up for HD services. In addition to that, I think the return on investment argument, not only in terms of money but also in terms of time or added value perceived by the consumer.

A lot of consumers that we talk to — many of them don’t have an HDTV set — but they just don’t think that the improvement is great enough from say a digital picture to a high-definition picture, to either go out and buy the set or sign up for the service. The added value question in their minds hasn’t been answered positively yet. That, in addition to the three issues we talked about before, always seems to pop up when we talk to consumers about why they’re not getting HDTV sets.

HDTU: A producer at the summit said that once viewers actually see HDTV, it’s like an addiction. They just want to have it and no other type of TV. How do you square that with your comments about some consumers not thinking the improvement is great enough to make the switch to HD?

MP: It tracks almost perfectly with what we hear and what we see come out of consumer surveys. The best advertisement for HD is actual HD. The best business model for improving HD penetration rate is showing people actual HD. Again, a lot of those people who question the added value either haven’t seen HD, or what they’ve seen isn’t true HD.

So yes, I agree totally with the comment made by that gentleman in the audience, where you see that seeing is believing in this case. In other words, that’s the best marketing vehicle for new HD customers, and the future of HD services is getting that picture in front of people.

That’s harder than it actually seems like it should be because if you are sitting at home and you’re happy with your TV set and happy with your picture, what’s the driver to move to HD? You have to see somebody — a friend or a relative — or go into Best Buy and see that. Something has to move you to make that decision.

HDTU: Where do we stand in terms of HD households today and into the future?

MP: Specifically, in the U.S. today, there are 9.8 million households that are watching HD programming — in other words, HD service households that have both an installed HD set and are watching HD programming. So, it’s just fewer than 10 million at the end of 2006.

Looking forward, we expect that number to reach 13 million 12 months from now — or 13 million by the end of 2007. We expect that number to be just under 16 million at the end of ’08, 20 million at the end of ’09 and then reach about 23 million to 24 million at the end of 2010.

In terms of a forecast, that could go up, but not significantly. In other words, that may rise 10 percent by 2009-2010 based on a couple of other factors happening to include improved education, to include resolution of the HD-DVD vs. Blu-ray issue, to include more programming. But, we find that’s pretty realistic growth projections for the next four years for HDTV services.

HDTU: How do you see the HD-DVD vs. Blu-ray war being resolved?

MP: We hear several things about that. We have maintained for the past year or so that there’s room for both formats in the market. If both formats continue to exist going out three years from now, however, it’s going to slow down the adoption rate of people watching HD-DVD or Blu-ray services.

What we heard recently, and we are hearing this from several sources from both consumer electronics manufacturers and silicon suppliers, that there is a move among certain manufacturers to try and develop a universal drive in the next 12 months, roughly. In other words, you’ll get your DVD player and it won’t have two drives. One won’t be Blu-ray and the other HD-DVD. It will have a single drive that can play either format of DVD.

Now, there are a lot of issues that need to be addressed and solved before that comes to market. But, we are hearing more and more about interest in that type of device. So, I would say conservatively there might be something on the market 12 months from now that provides a universal drive.

That doesn’t mean it’s going to be cheap; it doesn’t mean it’s going to solve the sort of conundrum between the two different standards. But, it means there might finally be an alternative that would be readily adopted by consumers. So, I think the problem is not going to be solved in the next year or two. The market is going to be constrained by multiple standards, but we are starting to see the development of an alternative in terms of getting products into consumers’ hands.

HDTU: From the figures you presented during your presentation today, about 19 percent of HD viewers receive their signal over the air. That’s a little bit higher than the approximately 15 percent who watch NTSC over the air. What accounts for the difference?

MP: You’re right. If you split it out like that, it’s actually a little bit higher penetration rates for terrestrial HD households than there are regular terrestrial households. So, there is roughly 19 percent of the 9.8 million HDTV service households today that are terrestrial, where there is only about 15 or 16 million total households, so we are talking about 13 percent roughly of terrestrial.

What that points to is that a lot of the terrestrial households were among the first to adopt HDTV and HDTV services because it was as a whole less complicated at first, mostly because you couldn’t get HD services from your cable or satellite operator. If you wanted HD in 2002 and most of 2003, you had to use an antenna to get over-the-air programming.

So, a lot of those early adopters were terrestrial households. That’s probably the biggest reason why there is a difference between the two.

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