Introduction

This report is the successor to the New Television: Video Dialtone, Broadband Cable, DBS and the Digital Revolution. This CIR report was published in 1995, a time when telephone companies had major ambitions in the video market and when DBS was just becoming a reality. It was also a time when high-definition television (HDTV) was still slowly making its way through the standards process and standard-definition digital television was still being developed. Then there is the emergence of the Internet as a major force in electronic communications. The Internet is not yet capable of delivering quality video, but its presence is one that all businesses concerned with DTV will have to cope with.

Much has changed since 1995. The telephone companies have abandoned their most grandiose plans for video, although they retain an interest in this area. DBS has become mainstream in many countries and digital television (DTV) and HDTV are on the verge of becoming reality. The Internet or to be more precise the World Wide Web is everywhere.

The phrase "New Television," is used here to mean any developments that provide a paradigm shift in television as we know it that is broadcast, analog, standard definition and color. These paradigm shits are occurring or could potentially occur along three dimensions: picture definition, video-on-demand (VOD) and interactivity. The focus of CIRās first report on the New Television was on interactivity. However, much of what was once thought would be accomplished by interactive television, (e.g., home shopping) is now moving onto the Internet. By contrast the issue of digital television and high-definition television, which at the time of the first New Television report seemed lost in a messy standardization process, has now come center stage and is the main focus of this report. Video-on-demand is also beginning to rise again, having had some technical and market set backs in the past.

Exhibit 1-1 sets out definitions and profiles current developments in the various areas that we refer to as the New Television.

This report analyzes the commercial opportunities that are arising in the area of DTV and HDTV in this new environment. In the U.S., these areas are now both subsumed under the heading of Advanced Television. While DTV/HDTV is the primary focus of this report, we examine the commercial aspects of all digital developments in the television business. The world is going digital and so must TV. In fact, Nicholas Negroponte of MITās Media Lab was the first one to say of TV and video "It must be digital. It must be digital." This cry was even heard as far as Japan, the lone supporter of analog HDTV (high definition television) when, Japanās Director General of the Broadcasting Bureau of the Ministry of Posts and Telecommunications (MPT) stated at a news conference, "The world trend is digital." This comment was remarkable because it admitted that Japanās crowning technological innovation HDTV was a failure.

In 1996, the U.S. created a digital standard for television and set up a timetable both for the transition of analog TV to DTV and for the eventual shutdown of the analog spectrum and its return to the government. European countries also adopted a new DTV standard and are in the process of implementing it. Japan expects to complete its digital standard before the year 2000.

This report is primarily concerned with the new market opportunities and challenges that are presenting themselves for vendors of transmission, switching and computing equipment as the result of these developments. It also investigates the new business opportunities that DTV/HDTV means for broadcasters, cable television companies, direct satellite operators and telephone companies.

In this report we have examined the key trends responsible for shaping the deployment of DTV and HDTV. We have analyzed these trends in detail and addressed the technical and marketing issues surrounding these new technologies. This report also contains a detailed analysis of all the major vendors of infrastructure and subscriber products for the HDTV market, along with a ten-year forecast by end user segment.

The report examines in detail the driving forces behind DTV/HDTV and their implications. The perspective taken throughout is that of the vendor, offering or planning to offer equipment for sale in the emerging markets for DTV/HDTV equipment. Although more attention is paid in this report to developments in the U.S. than other markets, this report covers all the major countries in which there are serious attempts to offer DTV.

Chapter Two of the report provides a history and overview of the creation of DTV in the U.S., Canada, Europe and in the Asian-Pacific Region, particular attention is paid to its creation and impact on the broadcast, cable TV, DBS, and the PC and video markets. The report discusses in depth the creation of DTV and its impact on these segments of the markets leading up to the creation of the new DTV standard within the U.S., Europe, and the Asia-Pacific region.

HDTV was founded in Japan (as an analog technology) and then emerged in both the U.S. and Europe. The report covers the history of HDTV in depth, providing the reader with the background information necessary to understand the reasoning behind the creation of the three different advanced television (ATV) standards in the U.S., Europe, and Japan.

Chapter Three discusses the critical technologies and innovations over the past ten years that provided the essential ingredients to create a DTV standard. Before those ingredients existed, DTV was seen as the holy grail, never to be attained. This view was expressed by CBSās Senior Vice President for Technology: "We will have DTV the same day we have an antigravity machine." General Instrumentās groundbreaking work on digital compression eventually led to the movement in the U.S. to a DTV standard.

This chapter highlights some of these new digital compression technologies and discusses some key technologies, such as the Motion Picture Experts Group (MPEG) family of compression technologies. The chapter explores the strategic implications of digital compression for the industry and remaining technical and technological hurdles.

Chapter Four discusses the products and services that have resulted from the use of these new technologies. The three distribution mediums terrestrial, wireless, and satellite distribution are discussed in depth. All three technologies use different methods for delivering DTV and digital video to the consumer. Wireless distribution includes the differing types of wireless approaches to delivery of TV and video. Satellite distribution is restricted to direct broadcasting satellites, and not the older C-band satellites. Each description also includes a full explanation of the varied costs and benefits each brings to the delivery of DTV and digital video.

Chapter Five describes the various standard setting and interoperability organizations that were integral to the development of DTV and video standards.

Chapter Six thoroughly discusses the market conditions for DTV and video in each of the selected regions: U.S., Canada, Europe, and the Pacific Rim. Each section examines the regulatory environment, demographic information, and strategies of various players integral to the successful implementation and penetration of DTV, especially broadcasters, cable companies, and DBS operators.

Chapter Seven profiles 20 different equipment vendors who serve the DTV, video, and access markets in the regions covered in the report. Chapter Eight provides detailed ten-year forecasts of the marketplace. Chapter Nine highlights the opportunities and strategies available to both equipment manufacturers and service providers in the markets featured in this report and draws some general conclusions about the marketplace.

The report is based on both primary and secondary research. Primary research consisted of interviews of industry players, as well as regulators and academicians. Secondary research was based on information from telecommunications equipment manufacturers, consumer electronics companies, computing equipment manufacturers, cable and satellite companies and telephone companies, as well as regulators and national governments.

The primary research conducted for this report included both personal and telephone interviews. In addition to interviews conducted specifically for this report, CIR relied on interviews conducted by CIR for other video-related projects conducted in the past. Important information was also collected through attendance at major conferences.

Secondary research was also conducted by CIR for the purpose of fact checking and gaining an in-depth perspective on developments in the HDTV/DTV market. Secondary research for this report was based on materials in CIRās extensive telecommunications library and on various computerized literature searches, including searches of the World Wide Web and of commercial databases. CIR has been following the development of DTV since its earliest days and its library includes files on every major company involved in this field as well as stockbroker reports and technical material. CIR also subscribes to some 200 periodicals on telecommunications, data communications, television, computing and technology in general and purchases all major relevant texts on television and broadcasting technology as these become available.

Finally, the CIR library contains many relevant market research reports, including a complete collection of CIR's own studies. These were used extensively in compiling this report.