74 HD networks have launched since 2003

Why the need for so much high-definition content? According to a new study, cable and satellite HDTV subscribers will penetrate 65.7 percent of multichannel households in the United States by 2012. That’s dramatically up from only 18.8 percent in 2007.
More than one third of homes now have HDTV sets, with that number growing each year, said SNL Kagan’s newest study, “Economics of High Definition Cable Networks.” The research indicates that pay networks will face increasing pressure to offer more high-definition content to viewers.

Seventy-four HD networks have launched since 2003, the study said, offering a variety of programming options-from sports to movies to family entertainment. Several of these networks are simulcasts of their standard-definition counterparts, but some show content produced in HD or transferred from 35mm film.

There are two main sources of network revenue in the new HD era: license fees and advertising, the study found. To gain wider distribution, simulcast networks will have to sacrifice license fees, which account for about half of a traditional cable network’s revenue stream. 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.

“The 25 HD networks we tracked for this report tallied $49 million in gross ad revenue in 2007. We estimate that number will grow to $421.7 million by 2012, but it will still be small compared to sums generated by traditional cable networks,” said Derek Baine, senior analyst for SNL Kagan. “That segment of the industry posted $19.4 billion in ad revenue in 2007 and it is estimated to grow to $28.3 billion by 2011.”

SNL Kagan sees huge potential for HD content in the coming years. “Revenue for traditional cable networks has grown steadily over the past decade from nearly $12 billion in 1998 to nearly $38 billion in 2007, a 13.7 percent CAGR,” added Baine. “Revenue for the HD networks was $465.1 million in 2007, and we think it has the potential to grow to nearly $2 billion by 2012.”

For more information on the report, visit www.snlkagan.com.