News : Cable sees opportunities in digital television

By Yinka Adegoke

NEW YORK (Reuters) - The U.S. cable television industry is feeling more confident going into this year's Cable Show in New Orleans, with the transition to digital television expected to pay dividends for cable operators.

By February of next year, the U.S. government will require the 18 million to 22 million homes that get their television entertainment solely from over-the-air analog broadcast signals to switch to digital televisions.

Digital televisions allow broadcast signals to be compressed, thus freeing up broadcast spectrum that can be sold by the government to media and phone companies.

Though most cable operators already offer digital video to their customers, the government-mandated transition offers a chance to win new first-time or lapsed pay-TV subscribers.

An SNL Kagan study conservatively estimates that 10 percent of those over-the-air U.S. households will opt for pay television after the transition, with cable receiving the majority of converts and satellite and phone companies splitting the remainder.

Comcast Chief Operating Officer Steve Burke said this month that the digital transition offers a "real opportunity" with the 8 million analog broadcast households in its region.

"Many of these people have analog sets and they are going to need to do something," said Burke.

Time Warner Chief Executive Glenn Britt was more conservative. He said last month he expected a modest pick-up in new subscriptions due to the digital transition.

CABLE REBOUNDS

Cable operators such as Comcast Corp (CMCSA.O: Quote, Profile, Research) and Time Warner Cable Inc (TWC.N: Quote, Profile, Research) have bounced back from the second half of 2007, when increased competition from satellite TV operators and phone companies undermined confidence and hurt shares.

After forecasting a difficult 2008, some analysts were surprised by the strong subscriber growth posted by major cable companies in the first quarter, allaying concerns about the U.S. weak economy and housing market slump.

"Cable television will do fine in a recessionary period," said Jan Woodcock, a consultant at Deloitte Consulting.

"Entertainment becomes more important in hard times and you'll go for the most reasonably priced form, which is cable."

Shares of Comcast, the largest U.S. cable TV provider, have risen 40 percent since hitting a 12-month low in January. Time Warner Cable shares have gained 38.5 percent since its year low in February.

END-YEAR RUSH

Analysts anticipate a surge in consumers switching to digital television late in the December holiday season, with high-definition, flat-panel TV sets acting as a catalyst.

According to Frank Magid Associates, 25 percent of U.S. households now have HDTV sets and growth is accelerating. Nearly four in 10 HDTV set owners plan to purchase another HDTV set in the next 12 months.

Competition between cable and satellite will heat up over the coming year as they vie to offer more high-definition content to win consumers. Comcast offers hundreds of HD movies and TV shows for free and on-demand viewing.

"You've bought this $5,000 high-performance TV, it's hanging up on your wall with a new home theater system, so you want to exercise it with whatever you want to watch," said Comcast's senior vice president of video services, Derek Harrar.

"HD is going to be a major topic this year," said Harrar.

Cable companies are expected to show off advances in digital technology, such as new devices and services compatible with the interactive Tru2way platform, which debuted at the Consumer Electronics Show in Las Vegas in January.

Tru2way technology enables all cable operators to deliver their services over a single platform, so that compatible TV sets and digital video recorders can receive programs and interactive services without a set-top box. Any device branded Tru2way will work with any cable operator, and will also allow 'two-way' services like video-on-demand.