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High on High-Def

Although the hi-definition television (HDTV) wave has yet to crest, a new study from SNL Kagan shows that there are a few million good reasons why DirecTV Group Inc. (NYSE: DTV) is bulking up on linear hi-def networks and cable operators such as Comcast Corp. (Nasdaq: CMCSA, CMCSK) are expanding their libraries of HD "choices." (See Comcast Launches 'Project Infinity'.)

According to an executive summary of the firm's new report, "Economics of High Definition Cable Networks," there were 18.3 million cable and satellite HD subs in 2007, equal to just 18.8 percent of the U.S.'s universe of 97.8 million multichannel households. SNL Kagan believes that figure will balloon to 71 million HD subs by 2012, or about 65.7 percent of an estimated 108 million multichannel homes.

Although the number of homes with HD sets are rising rapidly (there were about 39 million HD homes in 2007, versus 27.8 million in 2007), the revenue growth for hi-def networks isn't expected to grow quite as quickly. In fact, it appears that some are giving their pay TV affiliates a free ride during the initial spectrum grab.

"Traditional cable networks derive approximately half their revenue from license fees... but only a few HD networks are getting license fees," the report notes.

SNL Kagan estimates that cable networks generated $20.2 billion in affiliate revenues last year, with HD bringing in just $418.8 million.

The advertising revenue pool for HD nets is, likewise, much smaller in comparison.

But the overall revenue picture for HD networks is expected to brighten a bit as studios expand their HD libraries, networks secure broader carriage deals, and more eyeballs seek out hi-def fare. Although HD networks drummed up revenue of just $465.1 million in 2007, that number could rise to nearly $2 billion by 2012, SNL Kagan predicts. But that still will be dwarfed by the larger "traditional cable networks" pool, which brought in nearly $38 billion in revenues in 2007, according to the firm's estimates.

— Jeff Baumgartner, Site Editor, Cable Digital News

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