American Production Services has been one of the leaders in HD production and post for the last few years. We were one of the first to adopt 24p in our two HD online suites. Our experience has been one of great highs and great lows. Each time we post a new movie, we feel like HD has finally taken off. But following the completion of a project, we see HD fall back again into near anonymity. KCTS, WETA, KING, WRAL and several other television stations have taken bold steps to bring this format into the mainstream. Incentives for change vary tremendously among the various sectors of the broadcast industry. Ultimately, it comes down to a simple question: When should a post house, a station or a network make the leap into HD? Should they wait for the set penetration to evolve to a level where it makes economic sense? Do they need to lead the transition? The answers are as complex and varied as those who make up this diverse industry. Let's take a look at the future for content producers, TV stations and networks as they evolve into the digital world and especially the wonderful world of HD.
The future for content producers is bright in HD. This is primarily because HD technology for acquisition and post is mature, and producers can take advantage of a range of products that are all of extraordinary quality. Competition is beginning to push prices down, and now that the 24p cameras have been released, availability is good. It makes sense for producers to make their programs in HD and protect for the future. Even where film is the acquisition medium, HD is the best choice for telecine and post because of the great quality. The differential in cost is not that great, and the benefit for future use of programming in HD is clear.
The future for broadcast television stations is a different matter. In large markets, the incentive for change is high because of the need to look like a leader, but in smaller markets, just providing the basic service is enough. HD is still expensive and for stations still wired for analog production and transmission, the transition to digital can be prohibitive. Even where a station has committed to digital, the drive to change to HD is still limited. With the lack of television sets out in the public, there is little incentive for stations to provide programming for the few who have them.
For the networks, the progress is mixed. So far, manufacturers have stepped up to the plate and given great deals or complete subsidy for HD production. Networks know that HD is the future, so they have begun to protect for distribution when the established base of sets justifies wider transmission. And now with 24p production, there are programs like Diagnosis Murder, Roswell, Titus, Earth Final Conflict and 110 Center Street experimenting with the format. So far, the results are positive and we should see a lot more 24p acquisition in the next season startup. Networks now make most of their profit on the back end in syndication or foreign sales. 24p offers tremendous advantages for foreign sales because it is an international format. With profits often withheld until a future sometimes four or five years away, it makes it even more critical to protect for the future. So HD is doing well with the networks, and the trend should heat up considerably as experience is gained.
So where does the incentive come for the kind of change needed to bring HD into the mainstream? I believe the answer lies in a fundamental value, the entrepreneurial risk-taking model that has kept the U.S. at the forefront of new technology in the world.
As the owner of a large post production facility, it is often painful to attend NAB and see the new technology. Yes, it's exciting to see new tools and better images, but what if you haven't paid for the old technology yet? That's what makes it so difficult to change. Will your competitors beat you to the punch? Will they now be able to provide better quality to the customer base and attract some of your customers away? This is part of the inner dialogue that goes on in the minds of owners of post facilities every year.
It may be helpful to think of your facility, whether it's a post production house or a broadcast station or even a network, as a pipe. At one end of the pipe, you push new equipment in. On the other you pull the old out. At the beginning of the pipe, the equipment is worth a lot. As it travels through, it loses value quickly, sometimes with amazing speed. But as it travels, you receive benefit from it, hopefully enough to justify the original cost. By the time your equipment reaches the end of the pipe, it's probably not worth much, if anything. The goal is to get the maximum value out of the equipment before it reaches the end. So the speed with which it travels through becomes the key to survival. If it moves through too quickly, and you haven't obtained enough value from use of the equipment before it is worthless, then you face financial failure. If you don't replace old equipment with new, then your competitors eat you alive as your ability to serve customers falters. The pressures to bring on the new are much higher for post houses than broadcast stations or networks. That's why our industry has led the way. The incentive to get every dime out of equipment overcomes many station managers who remain conservative. The market is not forcing them to change. Fortunately a few are beginning to look past the present bottom line and see a bright future as a result of adopting HD now.
So, there is no easy answer. It depends on a willingness to step up and lead. We know it's going to happen and the more who commit to HD technology, the faster it will come. As a large investor (read risk-taker) I believe it will come sooner than later.