Ahead Of TheGame

With each passing year, it seems high definition broadcasting gains further acceptance in the industry. This fall season saw ABC, CBS, and NBC adding HD versions of their most popular shows to their lineups. There has also been a rise in the number of post-production facilities adding HD capabilities into their plants, indicating more demand for that type programming from broadcasters and producers. With his recently launched, all-high definition network, HDNet, Mark Cuban is looking to create even more of a demand for HD. And while he is still taking a major risk by assuming that the market for it is ready to explode, it often takes a maverick like him to spur the competitive fires of a technological (and market) revolution.
Author:
Publish date:

With each passing year, it seems high definition broadcasting gains further acceptance in the industry. This fall season saw ABC, CBS, and NBC adding HD versions of their most popular shows to their lineups. There has also been a rise in the number of post-production facilities adding HD capabilities into their plants, indicating more demand for that type programming from broadcasters and producers. With his recently launched, all-high definition network, HDNet, Mark Cuban is looking to create even more of a demand for HD. And while he is still taking a major risk by assuming that the market for it is ready to explode, it often takes a maverick like him to spur the competitive fires of a technological (and market) revolution.

Cuban is best known as one the success stories of the golden era of Internet start-ups in the 1990s. He founded Broadcast.com, a website that streamed audio and video programming, in 1995, and sold it to Yahoo in 1999. The transaction transformed him into one of the now-mythological "overnight billionaires" of that time. He was involved in the tech business long before that however, mostly on the IT side. He got his start selling PC software in 1982 and in 1983, started Microsolutions, a PC systems integrator. He sold the company to CompuServe in 1990 and then went on to trading tech stocks throughout the first half of the 1990s, until the founding of Broadcast.com.

Now he's dipping his hand back into the broadcast pool with HDNet, one of the first all-high definition television networks in the world, of which he is a cofounder (along with Philip Garvin, the general manager and COO) the chairman, and president. HDNet is currently located on DIRECTV channel 199 and broadcasts mostly sports and entertainment programming. The sports portion of the programming is especially fitting for Cuban, as he owns the Dallas Mavericks. The network creates its own programming (with the help of its two all-HD mobile production trucks) as well as obtains shows from other content providers.

The seeds of the company had already been planted in the mid 1990s, when Cuban was still at the startup that made his name. "I followed the HD market while I was still at Broadcast.com," he said. "It didn't take a genius to figure out that there was no content and an opportunity there. I just wanted to wait till the prices of TVs came down to those of analog, which for big screen TVs, they have."

For Cuban, that moment came this year. He said, "It was very obvious that the price points for the TVs had fallen so that anyone shopping for a big screen had an easy decision to buy an HD-ready set. When I talked to the sales reps on the floor, the only reason they weren't selling the HD receivers to go with the TVs is because of lack of content. I thought that if we solved that problem, or at least put a dent in it with sports, it would give the people on the sales floor a reason they needed to add the receiver."

Cuban and Garvin approached DIRECTV about using Channel 199. DirecTV liked the idea and agreed to work with them. After that, the duo clinched deals with the rights holders of several major league sports teams, and HDNet came to fruition. Cuban says there are a lot of benefits in dealing with a major DBS provider like DIRECTV. "Because we were able to do a deal with DIRECTV," he said, "we were in a position that if someone saw HDNet at a sports bar, or in a store, or at a friends, they could just tell the rep that they wanted DIRECTV with an HD-enabled receiver, and within a couple of days they were ready. This immediacy of purchase was critical."

Like many others trying to gain a foothold in the HD world, Cuban thinks sports is one of the best ways to grab an audience. "Sports truly gains from HD," he commented. "The better picture quality and 16:9 aspect ratio create a completely new, compelling viewing experience. I felt it, and I have yet to find anyone who has seen a sporting event on HD who has not wanted to tell all their friends about it and watch more."

Cuban says that HD broadcasting has not cost his company much more than analog or SD. "Prices on equipment have come way down," he stated. "We built an [all-HD] production truck for under $5 million, which would be the same cost of a production truck in the analog world too. I don't know what people are talking about when someone says that the costs are higher-I mean, tapes are a little expensive, but cameras and VTRs are pretty much the same. People aren't any more expensive. If there's a cost difference, it's on the end of the final mile-an MSO, or a satellite provider, as in our case, because it takes up more bandwidth. But from our end, it's the same cost [as analog or SD]."

Cuban also claimed that HDNet does not pay more money for its HD transponder space either. "The cost of the transponder is the cost of the transponder," he said. "It takes more bandwidth for an HD channel than it does for a traditional analog or digital channel, but if you're going to buy a transponder, it's the same cost one way or another. Bits are bits. It doesn't matter."

HDNet also does not have to pay a lot of money to get HD programming from content providers. "The content providers understand that we don't have this huge audience. We're not broadcasting to 50 million people yet so we're not able to pay what CBS is going to pay for their analog feed. So we pay relative to our audience size, or we don't get the content." Right now, HDNet obtains most of its revenue by farming its trucks out for SD and HD productions and through advertising. As its channel is part of the basic package for DIRECTV subscribers, it does not get a percentage of any incremental fees. It is not yet profitable, but Cuban has faith it will become so in the near future.

Cuban has several other projects planned for the network. He is currently working with several over-the-air (OTA) stations to create an auxiliary, "unwired" HD network that will provide content to fill in the hours the stations' networks don't provide. Cuban doesn't think there is a conflict of interest between the OTA stations and DIRECTV: "We and DIRECTV feel that OTA HD compliments rather than competes with DIRECTV."

He would also like to develop HDNet into a "network of multiple programming networks." He thinks there will be a space for interactivity in his programming, although he tempered that by saying, "we have to take care of first things first. I'm focused on building HD." In the future, he sees his company as having "multiple revenue streams, multiple networks, with some being subscriber-supported in the future, and a media distribution and production business we hope to build as well." Cuban has no doubt that HD, as a new broadcasting format, has nowhere to go but up: "I don't know if we will make 85 percent [digital penetration] by 2006 or not and stations will have to give back spectrum or not, but, I do know that HD will have a huge impact on the entertainment world," he noted.

In fact, Cuban thinks that HD will become so mainstream as to put programmers that don't broadcast it at a severe disadvantage. He said, "At the 20 or 30 percent mark, viewers will have such a huge preference for programming in HD, that stations/networks/programming not in HD will be considered second class and suffer in ratings. I think we will see a transition like we saw from AM to FM for music stations. The problem for a lot of networks will be that there won't be the bandwidth available for them on MSOs and satellites-so there will be Œhave not' networks."

Sometimes, one has to take enormous risks to make enormous gains. A small group of investors did that in the "golden" nineties and got rich quick. Mark Cuban was one of those investors. Sometimes, one has to take the missing side of an equation and balance it. In the broadcast industry, as most would say is obvious at this point, the equipment and technology are there to implement HD. What's missing is the content. A select few networks have decided to start broadcasting in HD. They can't be completely sure whether or not people will, quite literally, buy it. But they believe in it, and Mark Cuban is one of them. If their risk pans out, they win.