The Economics of HDTV
Constantly changing consumption patterns and new technologies in communication industry foster  significant changes on one of America's most important institution -TELEVISION.  Introduction of digital technology  into TV realm is has been a  major challenge.
The Internet is one of the well known successfully implemented applications of digital technology.   The World Wide Web permits a user to send and receive video data, even though the quality and form are different from that of TV.  Both TV and the Internet can use the same means of transfering data via fiber-optic cables and satellites.  Whether the Internet and TV are going to converge or be rivals remains to be seen.
Many of the new communication technologies that are available on the market are fascinating , however this is not what determines their survival and futher universal adoption.  The main concern is the cost and high enough demand to justify the risk of providing new service and making it profitable.  In the  television industry  broadcasters are out there to produce audiences and sell them to advertisers.  Most of the time it is not only the size of the audience but also its demographics  that concerns advertining agent.  The fact that TV networks try to sell audience instead of programs may appear strange  at first.   It comes down to the FCC's regulation that made collecting fees for viewing certainTV programs illegal till 1970's.  In contrast, today with  cable  television,  providers of the services  gain more revenue from subscribers' fees rather than from selling advertisment.  The question is how the introductinon and adoption of new ditital standards for television broadcasting is going to affect current economic situation.
The obvious parts of digital technology benefits are  ability to transfer larger amounts of data through existing networks and hte option of interactivity.

However,  technological development costs are extremely high and so are business risks. Certain questions arise:
 


 

The first major problem HDTV has is competition with other forms of digital television.  For example, two companies are developing "smart TV" boxes.  They are VCR type devices that digitally record and store TV shows.  They are being developed by RePlay Networks, Inc., and Tivo Inc.  The advantage of smart boxes over HDTV is the price.  It sells for $500 to $1,000 for a box.  In contrast HDTV costs between $6,000 and $12,000 a piece.  There is a tremendous drive for these "smart boxes" to succeed.  For example, Microsoft Corp. co-founder Paul Allen has invested tremendously in these two companies through his venture company.

HDTV's main problem is it's PRICE.  It is way to high.  It starts at $5,000 and goes up tremendously.  Right now their is hardly transmissions of HDTV, and the price is so high.  Therefore there is not a market.  They are not selling.  Recently, Consmer Reports rated HDTVs.  They determined that it is a great product.  However, due to the price, they reccomended buying conventional television sets.

Another factor in the resistance of the "HDTV Revolution" is the use of cable companies to transmit the HDTV signals. The question is will they do it.  They may compress the signals, to save channel space; thus saving them money.  This will decrease the quality of picture.  Why would the cable companies give a full out signal, when they can save and make more money by compressing the signal.  There is no incentive.

In addition, the computer industry sees profits to be made with HDTV technology and is getting in the act.  Not only will HDTV have an impact on home TV viewers, but it will also affect PC users.  They will be able to receive digital transmission thru the computer.  This opens a completely new market.  PC users will now be able to view full motion video.  For example, Sony just produced a HDTV computer monitor called the GDM-W900.  The only problem with the integration of HDTV with PCs and TVs is a battle regarding the technology.  Both sides want a different scanning standard.  Both are afraid that if HDTV uses one standard, it will infring on their technology, and they will lose their market.

If HDTV takes off there is tremendous profits to be gained.  In 2006, the federal government will require broadcasters to turn off their regular, analog TV transmissions.  This will 250 million American tvs obsolete in seconds.  Thus the idea is, that with America's demand for television, there will be a huge demand for the new and improved HDTVs.  According to a US News & World Report article the costs of replacing the obsolete televisions with new HDTVs will be at least $125 billion.  However, there are arguments that the government will not enforce the 2006 shutoff because too many people will be pissed off and there will be hell to pay.  For example, imagine finding out that your congressman was a part of the shutoff that occurred during the Super Bowl with three minutes remaining and a tied game.

Home cable companies networks are leading the way of HDTV transmissions.  They are trying to pounce on the new technology before others.  CBS agreed to a deal with Time Warner Cable.  In this agreement, money is not a term.  They pretty much agreed to help each other out.  The cable company will transmit HDTV broadcasts to its 14 owned stations.  The transmissions will begin in New York City, Los Angeles, Houston, Philadelphia, and Chicago.  Additionaly, Time Warner wants to send broadcasts of HBO digital.  They believe there is a huge market for personal home viewing of digital movies.  The two companies are banking on the belief that HDTV sets will have come down in price by the time the transmissions are set to begin in 2000.  HDTV set producers are also banking on this partnership.  They believe the NFL, which CBS carries games, will open a new expanded market.  They believe that men watching these better broadcasts of the NFL will entice them to buy this new technology.  In addition, last year the opening game of the Texas Rangers Baseball Season was broadcast on HDTV sets in local Circuit City stores.  They were trying to tap into the male market, which is more likely to cough up the thousands of dollars that these products cost.  NBC is also working on a similar agreement in order not to fall behind.

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