COMPANY CLOSEUP -- Big Eyes for HDTV
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Sunday December 9, 12:01 am Eastern Time
BusinessWeek Online
Technology: COMPANY CLOSEUP
By Andrew Park
Mark Cuban is a happy man as he strides into the American Airlines Center, the spanking-new 20,000-seat sports palace in Dallas. As owner of the National Basketball Assn.'s Dallas Mavericks, he has a dream job -- following the team around the country, hanging with pro athletes, and schmoozing with the media. With the debut of his own weekly sports and talk show on local TV, he has also become a bona fide celebrity in Big D.
Inside the new arena, he has not one, but two luxury suites, the second one
buried deep below the seats for when he wants privacy and space. When
an aide eyes the spread, with its black leather couches, wall of
plasma-screen TVs, and full-size bar, Cuban knows what she's thinking.
``Isn't this bad-ass?'' he asks, flashing a childish grin.
Sweet, indeed. When Yahoo! ponied up $5.7 billion for Cuban's Internet
startup Broadcast.com in 1999, the 43-year-old seemed set for life and free to
follow any dream he could imagine. Cuban dabbled in film production and
philanthropy, and last year bought the Mavericks for $280 million. His first
full season of ownership was capped with a run to the second round of
playoffs in May, the Mavs' best finish since 1990.
SPEED IT UP. So much for dreams. This fall, Cuban is back swinging for
the fences in Startupville, jettisoning into the world of high-definition TV
broadcasting, the digital technology with the wide, sharp picture that's
clearer than any other TV format. His company, HDNet, has staked out the
first nationwide all-HDTV channel and already signed up to show some National Hockey League and Major League Baseball games in the format. And he just inked a deal with NBC to produce portions of the 2002 Winter Olympics for broadcast on HDNet and local affiliates that can handle HDTV.
TV networks have experimented with HDTV for years, but those efforts have dragged painfully. Cuban wants to move faster. By 2006, the government's deadline for stations to broadcast only digital signals, Cuban hopes to be dug in right alongside the powerhouses. ``We're really trying to replicate ESPN circa 1980, HBO circa 1980,'' he says, referring to the time when the cable giants were mere upstarts nipping at the networks.
HDTV has a long way to go to before it's a force in broadcasting. Only about 1 million American households own an
HDTV-compatible set, and just 10% to 20% of those own the decoder needed to pick up HDTV signals, according to Forrester Research. That explains why TV's established players have been slow to move to the format, which also comes with much higher production costs than regular TV.
``We appreciate the analogy to ESPN. However, this is a niche application,'' says Rosa Gatti, a spokeswoman for the all-sports network. Yet, as Cuban points out, it won't be a niche forever. Prices of HDTV sets are falling fast, from $3,500 in 1998 to about $1,800 today. The Consumer Electronics Assn. expects to see 30 million sets sold by 2006, accounting for 30% of U.S. households.
CLEVER TECHNOLOGY. With that kind of momentum, Cuban sees a big opportunity for one or more premium channels that can offer sports and movies in HDTV, and he plans to spend $100 million of his own money to create them. He first got interested in HDTV while still at Broadcast.com, but he felt the price of sets, then about $8,000, was too high to make it a viable technology.
As prices came down, his interest grew, and last year he asked Phil Garvin, a TV veteran who was helping produce Mavericks telecasts, to come up with a way to inexpensively broadcast in HDTV. Garvin and his engineers devised a new scheme for wiring stadiums for fiber-optic cable that would save up to 70%, and a new truck that could handle its own satellite uplinks, saving the cost of renting an uplink for each event.
To save even more, the company convinced Fox Sports Net to let it ``piggyback'' on the network during games the two broadcast together, using Fox's announcers and graphics. Cuban then negotiated access to a little-watched channel on the DirecTV satellite system, giving him a foot in the door of homes around the country. Says Garvin: ``The wonderful thing about Mark is that he is willing to do things differently, even if they're not proven.''
ANOTHER DECADE? So far, the competition is weak. Just one other channel is broadcasting exclusively in HDTV, Paul Allen's regional sports network, ACSN, in the Northwest. And while CBS and ABC are putting prime-time shows in HDTV, they've made less of a commitment to sports because of the high production costs. Forrester analyst Josh Bernoff says the government's 2006 deadline might come and go, and that resistance from the big networks, their affiliates, and the cable and satellite systems could put off the move to digital broadcasting until 2016, diminishing the need for anyone to upgrade their TV sets.
The way Cuban sees it, the more foot-dragging, the better. It gives him more time to establish himself as one of the few choices for those who want their HDTV. If other networks aren't offering it, they'll start to lose viewers. ``It will be like music moving from AM to FM,'' Cuban says. ``AM is still there, but who listens to music on it?''
Already, HDNet has a devoted following among high-definition enthusiasts desperate for content. Cuban is giving them anything he can find, from travelogues and swimsuit contests to a documentary on the history of cakes. In a recent survey by the CEA, 78% of HDTV viewers said they were turned off by the lack of programs. ``It's a tremendously courageous venture,'' says Dale Cripps, publisher of HDTV Magazine.
REACHING DEEP. The early reviews are nice, but Cuban knows it'll be tough to match the success he had on the Net. The move to HDTV isn't a sure thing, and he could be stuck with a technology that goes nowhere. Cuban won't say how many viewers he has. To grow, HDNet will incur some high costs, including about $5 million apiece for production trucks, which will make it harder on cash flow. With no advertising revenue expected in the first two years, the losses will mount up quickly. Cuban, who hedged his Yahoo stock as soon as he could and is still worth nearly $1.5 billion, may have to fund HDNet out of his own deep pockets.
Negotiating the zigs and zags of a startup under so much public scrutiny will be a new experience for Cuban. In the early days of Broadcast.com, he and partner Todd Wagner tried to convince e-tailers like Amazon.com to stream music for online shoppers a la Muzak. None of them bit, and the idea was quietly dropped. With fame, ``You don't get that chance to fly in stealth mode,'' says Wagner, who keeps an office down the street from HDNet and the old home of Broadcast.com. But if HDTV takes off, Cuban could have another first-class seat. |
