“Everybody loves HDTV.” “The picture quality is amazing.” “It is a must have.” How many times have these statements been expressed throughout the last year? No one denies that high-definition content enhances the TV-watching experience, but a year after many of the direct-to-home platforms in Europe initiated services, customers have not rushed to upgrade their equipment in the expected numbers. The evidence suggests that the industry has much work remaining in educating customers and enticing them to make the commitment to high-definition services and make it a revenue producer.

The soccer World Cup, which took place in Germany in 2006, was expected by many companies and industry observers to be the launching point for widespread high-defiinition (HD) TV acceptance throughout Europe. German pay-TV operator Premiere based the launch of its services around the World Cup, and many other satellite pay-TV operators launched services around the summer time frame when the World Cup took place. But there has been no HD revolution in Europe, as adoption of HD services by customers remains slow. The questions of whether broadcasters have been progressive enough with their HD content strategies, and if customers really understand that you need more than a flat screen to receive HD services are as relevant today as there were a year ago.

Broadcasters Not Fast Enough

Gabriel Fehervari, CEO of the Alfacam Group, which is behind the Euro1080 HD channels, believes the hype around HD in 2006 was misplaced but thinks the situation will improve throughout the next two years. “I remember a conference I had in October 2004 in Munich. Georg Kofler, the CEO of Premiere, stated they would launch HD services in September 2005 on MPEG-4,” he says. “My guess was that at the time this would be quite impossible, as the MPEG-4 receivers would not be available in sufficient quantities. In September, Premiere did not launch their services. The whole World Cup expectation was too optimistic as practically no one was technically ready. I think the World Cup was six to 12 months too early.”

Others, such as Lucas Covers, chief marketing officer consumer electronics, for Philips, believes lack of content has been a huge factor in holding back HD in Europe. “If I tell my mother about HD she does not have a clue,” he says. “If I show her HD in my home she says, ‘What a beautiful picture.’ With word of mouth, you will increase the speed of penetration, but to be honest, having HD in your home today, if you only have one to two channels, it is hard to tell that story. We are not happy at this stage with the penetration of content. We can reset our expectations next year. I think the curve will ramp up when the content is more broadly available in peoples’ homes. I respect [that] the operators have to run a business model and have to find an economic way of providing this. However, the take-up of HD has been slow in my view.”

Stig Eide Sivertsen, executive vice president and head of Telenor’s broadcast operations, echoes those sentiments. “You have to get more from the broadcasters to transmit in HD,” says Sivertsen. “HD has to be from glass to glass. It has to start with the cameras and then finish up with TV screens, but if you are a broadcaster, with the economics of HD you don’t get any more money from advertisers if you screen in HD until you start losing audience share. People have bought screens and would like to have services. They will pick-up when HD comes along. When somebody starts, others will follow. But it will be slow from the broadcasters and the public in the beginning. Then it will reach an inflection point where you will get a more rapid pickup of HD. If you are a broadcaster, the economics are such, that you don’t get any more money from advertisers if you screen in HD, rather than SD. This will only start to change if you lose audience share to rivals who are screening in HD. People who have bought HD ready screens want HD content. Once certain broadcasters begin providing content in HD, others will follow. Broadcasters may be slow in moving to HD in the beginning, but it will soon reach an inflection point, and then you will see rapid progression in terms of broadcasters offering HD content.”

DTH Operators Lead Way

While some officials bemoan the lack of progress in terms of producing content, it is clear that satellite players and direct-to-home (DTH) operators are fuelling the HD boom in Europe. BSkyB is perhaps the most progressive DTH operator in terms of offering HD services and already has signed up nearly 300,000 HD subscribers after initiating service in 2006. “To put that in context, that is almost four times more than we did of Sky+ (the company’s personal video recorder service) in its first full year,” says Hilary Perchard, head of product marketing of BSkyB. “So it is our fastest ever additional selling TV product and that is a huge success for us.

“We now have 11 HD channels showing over 4,500 hours a month of HD content,” says Perchard. “If you take the terrestrial channels combined they show around about 3,500 hours of standard TV output month. So we are showing around a thousand hours more than they are in terrestrial standard definition. That is also more than 28 times the amount of HD content that our nearest competitor currently offers.  I would not expect the number of HD channels [we offer customers] to go up significantly in the next 12 months, but what I would expect is that we will continue to grow the number of HD shows on those channels so that the channels we have got will have more HD content on them.”

Perchard believes other operators could perhaps learn from BSkyB as  the operator took “a different approach” and was more aggressive in launching HD than others, and that this is perhaps reflected in BSkyB’s subscriber numbers. “It is all about having good content. We recognized that from day one,” he says. “A lot of other European services said we will launch HD as a trial. We will put a couple of channels up there. We took a different approach. If you are going to be in HD, customers are only going to see it as a credible and attractive service if you get the best of your content out there across the schedule such as sports, movies and first run entertainment.”

Premiere also has been one of the other main innovators of HD services in Europe, but subscriber growth in Germany has been somewhat slower than it has in the United Kingdom. At the end of March, Premiere had 70,000 HD subscribers. At the end of June this year, BSkyB had close to 8.6 million subscribers, mainly in the United Kingdom, and Premiere had close to 3.5 million subscribers , mainly in Germany. “The gfu (Gesellschaft für Unterhaltungselektronik – Consumer Electronics Society) predicts sales of 3.5 million HD-ready TV sets in 2007,” says Roland Fiedler, Premiere’s HDTV project manager. “Last year, around 2.5 million were sold.

However, far fewer households own HD receivers — only 84,000 had been sold by the end of 2006. It is possible that viewers do not yet feel ready to invest in a receiver and an HDTV subscription and are simply pleased with their attractive new flat-screen TV. Or maybe viewers do not know enough about HDTV and its advantages. It should be simple to persuade them. Anyone who sees HDTV is immediately awed by its quality.”

Other satellite-TV operators are getting in on the act, though not at the same level as BSkyB and Premiere. Canal Digital, owned by Nordic telco Telenor, launched HD services on a limited scale prior to the World Cup. Sivertsen believes HD could be a key selling point for Canal Digital, but describes the launch as “a last minute effort” with only 5,000 HD-capable set-top-boxes (STB) in the market. “For us, it is a differentiating factor compared to our competition,” he says. “We are the first in the Nordics offering HD and no one else among the leading TV-distributors is. So we are going to push it and get people on board. We will use that as a selling point and make sure customers realize they get the latest technology and best value. We want to be at the forefront.”

To get people to bite on HD, Canal Digital will not be charging for the service for the remainder of the year. “We have said to consumers who have signed up for the service that they will not pay anything in 2007 because we don’t think the quantity of the offer is good enough to warrant a subscription,” says Sivertsen. “But we will do that when the number of channels are up at a significant level, and we expect that to be next year. We are also hoping for more national content as well. Sweden had led the way with SVT. We are hoping to get more from Norway and Denmark.”

As DTH operators look to progress with their HD strategies, fixed satellite services players are also trying to take advantage of the opportunities in this area. For operators such as Eutelsat and SES Astra, HD means more capacity requirements and greater revenue opportunities. Olivier Milliès-Lacroix, Eutelsat’s commercial director, says the progress of the HD market had met the operator’s expectations to date. “We stand by market expectations that there will be approximately 140 HD channels broadcasting in Europe in the 2009 time frame and that 30 percent of these, representing eight to ten transponders, will be broadcasting though our video neighborhoods,” he says.

“Satellite will certainly lead the drive for HD take-up because it is best suited for this mission and is technically fully capable — without any upgrade  — to carry a large number of HD offers,” says Alexander Oudendijk, chief commercial officer of SES Astra. “Astra has the technical bandwidth and the geographical reach to bring HD anywhere within the footprint of our satellites. The satellite will therefore remain the most economical and efficient way to deliver HDTV to the consumer’s home.”

Technology Improvements

The next step for increasing the pace of HDTV penetration in Europe is providing technology improvements that will make it more cost-effective for pay-TV operators to offer HD services. Patrick Harshman, CEO of Harmonic, believes Europe’s entry into “the HDTV fray” makes it “the ideal greenfield for significant HD AVC (advanced video coding) deployments,” he says. “The coding efficiency of first-generation HD encoders required very high bit-rates to achieve the video quality consumers expected from these new services making offering such services expensive. Now however, improved second-generation HD AVC encoding platforms and cost-effective STBs make the possibility of HD services much more achievable. We believe that recent gains in coding efficiency coupled with availability of cost-effective STBs will allow for a significant uptake of HD deployments in Europe. With average bit rates still hovering in the 10 megabit per second range, HD AVC encoders can now hit the sweet spot, allowing telcos to access a large portion of their subscriber base and DTH operators to double the channel count without expanding transponder capacity.”

Thomson, an STB supplier for BSKyB and DirecTV in the United States, is working frantically to bring the costs of HD-capable boxes down to make it more accessible to households across Europe. “Thomson is already developing the third generation of HD decoders based on [system-on-chip technology] that will reach price points which allow for the massive deployment of HD,” says Georges Laplanche, vice president, Thomson Satellite Premises Systems. “It’s also worth noting that a key enabler behind the uptake of HD is the new DVB-S2 standard which has enabled operators to significantly lower the cost of delivering HD thanks to the savings in
bandwidth capacity required to carry the content.”

Prospects

With costs coming down and more content becoming available, the signs for HD in Europe look good and most officials remain optimistic — though they continue to rely on sports events to attract customers. “From experience, people are likely to make changes when there is a big event coming up. Euro 2008 and Beijing Olympics could be two such events coming up,” says Sivertsen.

“I think everyone understands HD will happen strongly over the next two years,” says Fehervari. “In 2008 you have the Beijing Olympics. This will have a very important impact. I think the timing of these Olympics is far more interesting than the timing of the World Cup.” 

“We believe there will be steady growth across Europe with the 2008 Beijing Olympics obviously presenting the next big broadcast event that will drive content delivery and consumer demand,” says Milliès-Lacroix. “As an operator, our objective is to be able to meet bandwidth demands both for contribution links and distribution.”

Beyond live events, broadcasters, satellite operators and content producers can also take heart in the predicted growth of homes in Europe that will own HD-capable TVs, says Roger Bolton, vice president of business development at Tandberg Television. “According to Strategy Analytics, by 2012, approximately 70 percent of European homes will own devices that support HD content,” he says. “In addition the number of HD-ready sets bought this year is likely to be 28.1 million throughout Europe, a 158 percent increase on last year. I therefore strongly believe that the exponential growth in HD uptake is likely to continue. As consumer device costs continue to fall, 2008 will see more operators move into HD and the addition of more HD channels on existing platforms.”

Paul Erickson, a media analyst at IMS Research, believes this increase in the purchase of TVs is a bigger key to the growth of HD than an increase in content. “This is more so due to consumer preferences shifting strongly to the smaller, flatter form factor of LCD and plasma for new purchases rather than the influence of HD programming availability,” he says. “Regarding set-top boxes, I think that is a different matter. For pay-TV providers who aren’t subsidizing their boxes, the prospect of paying substantial amounts extra for an HD STB is a limiter to wider adoption. I think this is significant because there has not been a plethora of HD programming in much of Europe that would compel people to put forth that extra expenditure for both STBs and service. This is changing, however, and I believe that late 2007 and all of 2008 will be strong years for HDTV growth.”

Bottom Line

The great HD revolution has yet to take place in Europe, but the tide could be ready to turn. Lack of content has been a key factor, but this is changing as attitudes from broadcasters slowly change and the price of equipment continues to fall.

Satellite pay-TV operators are leading the way in bringing HD services to households, but it one thing being first to market; it is another to persuade people to take the services. The World Cup was really the warm-up, and with lower costs, stronger TV penetration and more content, there can be no excuses for HD in Europe