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Seventy-one million to subscribe to HD networks by 2012

A new study from SNL Kagan estimates that cable and satellite HD will penetrate 65.7 percent of U.S. multichannel households by 2012, up from 18.8 percent in 2007.

The research, "Economics of HD Cable Networks," found that more than one-third of homes now have HDTV sets, with that number growing each year. As a result, cable networks will face increasing pressure to offer more HD content.

According to SNL Kagan, 74 HD networks have launched since 2003, offering a variety of programming options, from sports and family entertainment to movies. Several of these networks are simulcasts of their SD counterparts, with show content produced in HD or transferred from 35mm film.

SNL Kagan identifies two main sources of network revenue in the new HD era: license fees and advertising. To gain wider distribution, simulcast networks will have to sacrifice license fees, according to SNL Kagan. HD networks will try to compensate by increasing ad revenues, but it will be challenging to prove to advertisers that simulcast networks reach new viewers and therefore demand additional ad dollars.

For the study, SNL Kagan tracked 25 HD networks. Gross ad revenue for those networks last year reached $49 million. The research organization forecasts the number to climb to $421.7 million by 2012, however, those numbers are dwarfed by the $19.4 billlion in 2007 ad revenue posted by traditional cable networks, said SNL Kagan senior analyst Derek Baine. By 2011, SNL Kagan estimates that the traditional cable segment will grow to $28.3 billion.

Despite the hurdles, SNL Kagan sees a large potential gain for new HD networks. Total revenue for the HD networks was $465.1 million last year. That figure has the potential to grow to nearly $2 billion by 2012, Baine said.

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