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http://www.tvpredictions.com/directvbig092106.htm

The satcaster is taking heat for not adding more national HD channels -- and allegedly diluting the picture on existing ones.
By Phillip Swann

Washington, D.C. (September 21, 2006) -- It's not been a good week for DIRECTV. Well, at least not for the executives who oversee the company's High-Definition TV service.

First, Eric Shanks, DIRECTV's executive vice president of entertainment, revealed to TVPredictions.com that the satcaster would not add more national HDTV channels until the second quarter of 2007. Shanks said DIRECTV instead would focus on rolling out local HD channels in more markets across the country. (DIRECTV is launching several new satellites to expand its local HD service now and national HD in 2007.)

Since the revelation, TVPredictions.com has received approximately 100 negative e-mails from DIRECTV subscribers, complaining that DIRECTV's nine-channel national high-def lineup fares poorly compared to rival satcaster EchoStar (30 national HD channels) and several cable systems (anywhere from 15 to 25 HD channels.)

And then, to compound the problem, TVPredictions.com disclosed yesterday that Peter Cohen, a DIRECTV subscriber in the Los Angeles area, has filed a class action lawsuit against the company, charging that it has fraudulently reduced the picture resolution on its high-def channels since 2004. Cohen says the satcaster diluted the picture after promising "astonishing picture quality" when he signed up for the service and purchased the HD equipment.

(The charge is that DIRECTV "squeezes" the picture resolution to save money and/or create room for more channels.)


DIRECTV's Eric Shanks.

DIRECTV denies the charge, saying its HDTV picture quality is as good or better than anyone. But a judge this week ruled against DIRECTV's motion for a quick arbitration settlement.

The lawsuit was red meat for some disgruntled DIRECTV HD subscribers who crowded Internet message boards with disparaging comments about what they call, 'DIRECTV HD Lite.'

"Thanks for standing up for all us, Mr. Cohen," one writer stated at the AVS Forum.

How Big Is the Problem?
DIRECTV would appear to be in danger of alienating the growing high-def audience. More than 20 million U.S. homes now have high-def sets and sales are expected to boom during the holiday season. While e-mail writers and Internet posters do not represent that entire audience, they do reflect a growing unrest among DIRECTV's HD subscribers.

But just how bad is the damage? To answer that, we need to more closely examine the week's two news developments:

1. No National HDTV Channels Until 2007
DIRECTV has only added two national HD channels (TNT HD and ESPN 2HD) in the last year, a big disappointment considering chief rival EchoStar is now at 30 national HD channels. Many DIRECTV high-def owners say they were sure the satcaster would have added at least a few more by now -- and certainly more by the 2006 holidays. DIRECTV at this point does not carry such HD networks as Starz HD, MHD (MTV Networks' high-def music channel), National Geographic HD and Food Network HD.

So will DIRECTV's HD subscribers jump ship? Probably not -- at least for a few months.

The satcaster has the exclusive rights to the NFL Sunday Ticket, the pay package of Sunday football games. The 'Ticket' is a huge attraction for young males, a large segment of the high-def audience. It's unlikely they will pull the plug on their favorite pastime during the season.

However, come January, DIRECTV could start to lose its HD base if they continue to say no more national HD channels until the second quarter.

2. The Class Action Lawsuit
DIRECTV says the case has no merit, but the mere filing has triggered a wave of negative publicity about its high-def service.

To make matters worse, Cohen's charge is a tough one to defend. Even if DIRECTV's high-def resolution is up to industry standards, many HD owners who have poorly tuned sets will still think it's the satcaster's fault. Regardless of what DIRECTV does from now, a perception has been created that it dilutes the picture.

However, DIRECTV next year will switch to a new HD compression technology, called MPEG 4, which promises cleaner and more detailed images. Perhaps then, DIRECTV will be able to turn the issue around.

So, bottom line, DIRECTV has been hurt by the two revelations. But when it switches to MPEG 4 -- and adds a large number of national HD channels, as promised -- I suspect that all will be forgiven.