DirecTV Starts 3D TV Push

Satellite TV platform DirecTV is pressing ahead with the deployment of 3DTV, adding n3D, one of three channels sponsored by technology partner Panasonic, and ESPN 3D to its offering this month. DirecTV is bidding to take a leadership position in 3D TV despite the fact there are few homes at this point that can receive it. The new channels are augmented by à la carte 3D content in video-on-demand (VoD) and pay-per-view, slotted on channels 103-106 on the lineup of DirecTV. DirecTV n3D customers will need a 3D television set and 3D glasses to see available programming with the extra dimension effect.

A few years ago, high definition was the new frontier. DirecTV pushed hard in the beginning of HD and now says it has over 130 HD channels (and still growing). While 3D is just taking off, the company is positioning itself to be a leader in 3D channel deployment.

DirecTV is also planning to introduce an enhanced DirecTV Cinema service, which management hopes will bolster both subscriber and ARPU growth as well as reduced churn. There are no more specifics yet on those other programming initiatives.

Program highlights for n3D include the NASCAR Coke Zero 400 race, the local broadcast of the Yankees-Mariners baseball games and DirecTV's exclusive national 3D broadcast of the 2010 MLB All-Star Game, which is being produced by Fox Sports. Other original n3D fare includes Guitar Center Sessions with artists Peter Gabriel and Jane's Addiction, and documentaries Dinosaurs: Giants of Patagonia, Wild Safari:A South African Adventure, S.O.S Planet, African Adventure: Safari in the Okavango and Encounter in the Third Dimension.

VoD fare in 3D includes IMAX titles Deep Sea 3D and Under the Sea 3D, and also replays of World Cup highlights.
Analysis
Sports, games and movies are expected to be the early drivers of 3D demand in the TV medium. 3D television content (sports, documentaries) is ramping up, game content is slated to roll out later this year and 3D movies are being bundled with the purchase of new TV sets. Regardless of the new content becoming available, however, 3D in the home faces the near-term hurdle of very low 3DTV set penetration.

At year-end 2009, Screen Digest's TV Technology Intelligence service estimates that there were 125m HD sets in the US, slightly more than one set per TV household. Given that most families purchased new HD sets between 2007 and 2009 it is unlikely that many homes are ready to upgrade again to 3D technology. In five years, however, we expect the technology to reach critical mass; by 2014 an estimated 33.9m homes will have a 3D television. The question is, what will they do with it?

DirecTV and Disney have taken leadership roles in the development of linear 3D channels, albeit on a part-time basis. This cautious model is analogous to the first instances of HD television broadcast over-the-air by local stations.

The rollout of pay TV HD channels was slow and steady for the first seven years, growing from one pay TV HD channel in 2000 to 26 by 2006. The rollout of 3D networks is likely to be even slower given the constraints imposed by the technology itself (the glasses), the faltering economy and the high cost of producing content in this format. Production costs may be significantly lowered as 2D-to-3D conversion technologies improve, but 3D conversion of material originally produced for 2D is a tricky process, and so far results have been mixed.

Securing carriage for these early networks will be the easy part, given the ongoing advanced services battle among operators. Both DirecTV and Dish Network have been aggressive in rapid introductions of innovations to maintain their reputation as pace-setters in the HD and DVR arenas. This trend will likely continue with the deployment of 3D channels. Cable is still struggling to match satellite HD offerings, betting instead that VoD will be its key subscriber retention tool, although Comcast has plans to carry ESPN 3D. IPTV on the other hand, has done a good job of surpassing both satellite and cable in terms of advanced service offerings, beating cable in the amount of HD offered and besting satellite by offering true VoD. Both FiOS and U-verse have 3D plays brewing. FiOS is planning to launch the 3D YES sports network, and AT&T has announced it will carry ESPN 3D.

Although they may serve a purpose as technological crown jewels, 3D linear channels are a long way from becoming reliable contributors to companies' bottom lines. With limited viewership prospects in the future and prohibitively high costs of producing ads in this format, 3D networks will find it challenging to attract advertisers outside of the consumer electronics sector. Carriage fee revenue will also be small given the limited content these networks currently have to offer and the current operator pushback against escalating fees.