At present, other than a few titles available on the sidelined D-VHS format, the only way consumers can view HD content is via broadcast signals. In the US, almost every major cable and satellite pay TV operator is offering an HD tier in their services. HD movies and sports have been particularly important, with all premium TV and movie services (such as HBO, Showtime, Cinemax and Starz) offering an HD variant on their standard definition packages.
From a content owner perspective, however, there is no additional incremental revenue being generated from these HD services. That is, once the pay TV rights are sold, the pay TV operator is generally free to transmit it in whatever definition/ format they please. As a result, the HD unique selling point is currently only of financial benefit to the pay TV platforms, as the content owner will usually have already been paid once under the blanket window deal. With around 10 per cent of US TV households now capable of viewing HD signals (though not necessarily receiving them) and rising, this is a significant market.
Moreover, these are HD consumer households that if served solely by the broadcast market for any significant period of time, may come to most closely associate the HD format with the pay TV window. Given that there is a huge financial interest for content owners to maintain the primacy of packaged media, simply in terms of the revenue generated and the rate of return, it makes sense that if a desirable HD packaged media format is to come to market, it needs to arrive sooner rather than later. In this respect, at stake is who gets to generate incremental revenues from HD content - the pay TV broadcasters or the content owners.
This becomes even more imperative when considering that in the US, the Federal Communications Commission (FCC) has mandated that all over-the-air broadcasts be fully digital by 2007 - a definition which largely encompasses HD since many US broadcasters have decided to transmit a considerable portion of their digital TV content in a high definition format.
There is also a requirement that all TV sets over 13 inches in screen size sold in the US market post 2007 have an integral digital tuner - although this does not necessarily mean that they be HDTV tuners. (Some digital TV sets on the US market are simply either standard definition (typically 480i) or enhanced definition (typically 480p).)
Of course, if HD is successful, it can also raise the bar of consumer expectation from the home entertainment experience, with a particular focus on the visual quality of content. Although maybe not a completely convincing argument on its own, an HD format may work to differentiate the packaged media business from online downloads, digital TV and other ‘inferior’ modes of distribution.
At present, for example, internet HD services are focused on delivering content in a 720p or 1080i format due to bandwidth limitations. Downloading a 5 Gb-10 Gb video file on even a 10 Mbps consumer broadband connection can take more than two hours to complete. Increasing content resolution to 1080p will also cause the file size to increase, and hence becomes even more problematic for an online service.
With the two main formats both aiming for large-scale hardware shipments in 2005, the stage is set for a potential format war. As with DVD, it is anticipated that the packaged media industry will determine the eventual winner, whether in the consumer marketplace or prior to launch. As such, both the BD and HD DVD camps are actively attempting to woo the Hollywood studios to release content on their respective HD formats.
Where Hollywood stands
Rumours have abounded as to likely support for the formats, especially from the HD DVD camp that has so far leaked information on alleged content support from Warner Bros, Universal and Paramount. But with the exception of Sony’s Columbia-TriStar - firmly behind BD (as is expected will be MGM once the takeover is complete) - the general US studio stance seems to be undecided.
One possibility is that the US studios will hedge their bets and back both formats. However, every studio is clear that a format battle played out in the market would be a disastrous scenario. Some studios are waking up to the fact that it will ultimately be they, the customers of the formats, who will have to exert their leverage in order to avoid a format war.
Consequently, we believe that some studios may attempt to seize the initiative and force the issue - ahead of a commercial launch - by strongly supporting only one of the format rivals. This would appear pretty much the only way to drive the battling consortia to the negotiating table to work out some compromise single format.
However, even apart from the biggest issue of agreeing a single format, there are still a number of issues that need to be resolved before the major content owners concede to release packaged HD discs at all. These issues include concerns of resolution (visual quality), copy protection, manufacturing costs, storage capacity and interactivity enabling new business models.