Excerpts from the recent Carat Insight report: By February 17, 2009, all US broadcast TV stations must convert their transmissions exclusively to a digital signal (as opposed to an analog one). With the deadline looming, many questions are being raised as to what this means for both TV viewers and advertisers, and in some cases confusion exists.
Because the terms digital and HD are apples and oranges, the impending digital conversion has no impact on whether TV advertisers need to start producing their spots in HD. Rather, that is a decision made by each television network. However, none currently require it. That may eventually change down the road, once HDTV penetration is significantly greater, but it won’t by 2/17/09.
Thus, advertisers can opt to run in HD if they wish, or they can continue producing their commercials in SD. In HD, hi-def viewers would see the spot in hi-def, while lo-def viewers would see the spot in SD (via conversion by the networks). In SD, all viewers would see the spot in a lo-def format. It is important to note that advertisers cannot run an SD spot on a network’s SD channel, and an HD spot on the HD simulcast. Rather, the advertiser can select only one format in which to run. There are a few small cable networks that transmit exclusively in hi-def and therefore only accept HD advertising (i.e. HD Net, Mojo, and HD Theater), however, the vast majority of HD channels are simulcasts of a network’s SD feed, and therefore run the same programming and advertising at the exact same time.
It’s also worth noting that not all programming on HD simulcast channels runs in HD (although the majority of shows do). For example, all of ABC’s soaps and most of their reality and news programs are shot in SD. In those programs, all HD-formatted spots air as SD, even if viewed on an HD channel.
The following will explain the differences between the SD and HD formats from a production standpoint, along with some of the tradeoffs of each.
Picture quality: HDTV’s offer a far superior resolution to SD sets (either 720 or 1080 lines of video resolution compared to 480 lines). This translates into HD units having six times more picture detail than SD’s.
Audio quality: HD sets offer richer “surround” sound through additional speakers that SD sets don’t have.
Aspect Ratio: HD sets have a wider aspect ratio than SD’s (16:9 vs. 4:3). If a brand produces an SD spot, it will appear differently on an HD set, and vice versa.
If content (be it commercials or programs) is produced in HD format but viewed on an SD screen, the spot will be cropped on the left and right sides in order to fit the 4:3 ratio. That’s because the screen isn’t wide enough to display all of it. This could mean loss of important content (a recent CBS survey of 800 HD spots found that 6% lost vital information when converted to SD).
To combat this effect and prevent this from happening, most broadcast and cable networks are now requiring that HD advertisers supply their commercial as “center-cut protected”. This means that all of the pertinent content (such as character action, logos, titles, disclaimers, etc) must be positioned in the center portion of the screen so that any content that is lost upon converting the spot to SD is not important information. This could have a negative impact on creative development.
Converting SD to HD
Conversely, content produced in an SD format will not take up the entire screen on a hi-def set, and black pillars will therefore usually be placed on the left and right side of the commercial to create the 16:9 aspect ratio (some networks even run their logo in the black space, which can further detract from the look of the spot). Sometimes, to eliminate the pillars, networks opt to stretch the 4:3 image in order to fill the 16:9 screen, which could also impact the look of the picture. Additionally, the contrast between the lo-def spot running adjacent to hi-def programming (when viewed on HD sets) can magnify the inferior look of the SD spot.
Consideration Elements When Deciding Whether To Produce An HD Spot
While advertisers do not have to create spots in HD, they should start thinking about whether it makes strategic sense for their brands. The number of advertisers who are producing in HD is growing. While there are no official numbers, estimates vary that between 10% and 30% of commercials are produced in HD. Even ESPN, one of the networks most suited for HD, falls within this range. In May, 12% of their advertisers ran in HD, per a network source.
There are several factors (both media and non-media related) to consider in making this decision:
Target audience: Does your target have a high propensity to watch HD programming? Currently, syndicated research sources such as MRI and Simmons do not currently measure HD viewership; they only track HD set ownership. While this is not an ideal measuring stick, given that a large percentage of HD owners don’t actually have HD service, it is the best available syndicated research barometer. Brands can also seek to conduct primary research to more accurately measure HD viewership.
Media buy: Does your target watch programming that is available in HD? A recent analysis by The Bridge, a weekly newsletter covering the cable, satellite, and telecom industries, shows that on average, cable MSO’s offer 27 HD channels, while the average TV household receives 119 total channels (source: Nielsen, 2007 Television Audience Report). This means that the networks or program genres your target most frequently watches may not be available in HD or carried by cable operators due to bandwidth space (an HD channel takes up considerably more space than an SD channel does). As an example, Time Warner’s Manhattan cable system does not currently offer the following top cable networks in HD, even though many transmit in HD: MTV, VH-1, A&E, USA, Fox News, Nickelodeon, Travel, TLC, Lifetime, and Bravo, among others.
Nielsen survey data of HD owners who receive HD content shows that the program genres most frequently viewed in HD are sports and movies. Thus, if your target indexes highly on viewing those genres, it likely watches a good deal of HD. Reality and Music programs are least likely to be viewed that way.
As such, there are a couple of instances where an advertiser might opt not to produce an HD spot:
1. A national advertiser who runs only on cable networks (no broadcast nets): Given several prominent cable networks either do not have HD channels and/or cable providers don’t carry them in all markets, it might not make sense to run in HD. As mentioned above, it depends on the target and networks being bought.
2. A spot-only advertiser. A survey conducted by the TVB in mid-2007 showed that only 19% of markets had one or more stations that accepted HD spot advertising (although the majority of top 25 markets did). Note however, that 41% of those markets that did not said they expected to beginning at either the end of ’07 or in 2008. If that proves to be the case, this may no longer be an issue. An updated survey is currently in the field.
HD Penetration Levels: Penetration is still low, but is growing pretty rapidly, Per Nielsen, as of May ’08, 16% of US households (~18MM) have at least one HD set and receive at least one HD channel or network (what it calls “HD Receivable”). Three months prior (Feb ’08), penetration was at 14% and six months prior (Nov. 07), it was at 11%. That’s a gain of 5MM households since (+40%) since November, when Nielsen first began measuring HD penetration.
Nielsen also says an additional 13% of households (~15MM) are “HD Capable or HD Display Capable”, meaning they have an HD set but have not signed up for HD service from their cable or satellite provider and thus can’t actually view HD television. That means that 45% of the 33MM households with HD sets can’t actually view HD channels. That’s attributed mainly to consumers thinking that simply by purchasing an HD set they automatically have HD service, which is not the case (they need to purchase/rent an HD box from their provider). Another reason is that a surprising number of people purchase HD sets primarily to watch DVD’s and/or play video games.
Additionally, some consumers do not wish to pay more for hi-def service (although many cable companies do not charge), and others are satisfied with how the SD picture looks on their HD set.
Forrester Research estimates 41% of households (41MM) will have HDTV sets at the end of 2008, climbing to 48% (55MM) in 2009. However, like Nielsen, their data also shows that 45% of owners don’t subscribe to HD service, thus they project that only 23% will have HDTV service in ’08 and 26% in ’09. Penetration growth will be driven by decreasing prices, and the belief among some consumers that the transition to digital means they need to buy an HD set.
Looking slightly further into the future, Jupiter Research forecasts HD sets will be in 63% of households in 2010 (again, this does not mean all will have HD service). By 2012, that figure will rise to 103MM households (per Pike & Fisher) –87% of the US based on projected household figures.
Thus, 84% of households do not currently receive HD channels and therefore will not see commercials in HD (plus millions of HD households also have a 2nd and/or 3rd set that are SD, where viewers won’t be able to see an HD spot). A study by Frank Magid Associates done in 1Q ’08 says that 10MM households have more than one HDTV set.
Consideration Elements When Deciding Whether to Produce An HD Spot
HD Viewership Levels: In addition to the above, there is interesting data showing that the majority of HD viewers prefer to watch the SD channel feed over the HD feed. A study done by TNS among 300M households in LA that watched at least one HD channel during prime-time in a month-long period showed that ratings from the SD feed were significantly higher than the HD feed. For example, CBS’ HH rating on its SD channel was a 2.0, compared to a .7 on its HD channel. Fox’s was 1.29 on SD vs. .52 for HD. The same held true for the 6 other monitored networks. This is likely caused by two factors:
1. Cable systems place their HD channels in the 700-level tier, and viewers are habitually used to navigating the lower channel numbers while surfing (thus they continue to do so).
2. Research shows that 20% of HD set owners think they’re watching hi-def when they are not, meaning they think they’re watching HD on channel 2, 4, or 7, when they need to be watching channels 702, 704, or 707 (source: Leichtman Research).
It’s worth noting that Nielsen cannot currently break out HD viewership from SD viewership, as it doesn’t know if viewing is taking place on an SD or HD channel. It only knows if someone viewing a network resides in a household with HD service, and thus it reports HD and SD viewing in aggregate. Therefore, the above TNS study should be looked at for directional purposes only.
Consideration Elements When Deciding Whether To Produce An HD Spot
Production costs: There are varying viewpoints on whether these costs are substantial enough to greatly impact the decision on whether to advertise in HD. However, the general rule of thumb is that the cost of editing and finishing a spot in HD is only 10-15% more than in SD (between $5,000 and $7,500 additional for the average :30 spot). Note that spots with computer-generated imagery and digital effects can cost a lot more. Additionally, dubbing and shipping costs three to ten times more than SD (Carat estimates the amount to be 7-9x more). Lastly, if an advertiser wants to convert existing SD spots into an HD format it will likely be very costly, due to factors like retransferring film and redoing graphics.
Advertisers can produce an HD commercial in one of two ways:
1) Shoot commercials in HD using a hi-def camera (which is actually shooting on tape).
2) Shoot on film (the way a traditional SD commercial is made), then edit and finish the spot in HD.
Most HD advertisers are currently selecting option 2 because they believe film looks better, even though the cost of option 1 is generally less.
As use of HD spots becomes more mainstream, the above costs are expected to moderate.
Consideration Elements When Deciding Whether To Produce An HD Spot
Competitive Presence: Competitive monitoring services do not track whether spots ran in SD or HD formats. Thus, agencies need to attempt to gather intelligence by contacting networks directly. In general, many of the categories which gravitate toward HD spots are male skewing due to the proliferation of male appealing content in HD (i.e. Automotive, Beer/Liquor, and Consumer Electronics). However, the list of advertisers is fairly long and includes some female skewing retailers like Target and JC Penney.
Creative considerations: Media agencies and clients need to work closely with their creative agency partners to determine if center-cut protection will greatly detract from the look and feel of the commercial in HD (i.e. creatives may be concerned they are unable to fully utilize the entire 16:9 screen). If that is a major issue, advertisers may need to question whether to create an HD spot, given the vast majority of viewers will see the spot in SD anyway. Center-cut protection is not viewed as a final solution, and networks are working on new technologies to allow for advertisers to take better advantage of the HD format. But that will likely be a ways away. However, for brands that want to convey they are at the forefront of technology or offer the most superior product line of colors and textures, HD may be a “must do”. 30% of all TV viewers think companies that advertise in HD are more tech-savvy (source: Sports Video Group, 2007). A brand may actually run the risk of hurting itself should it not run in HD. For instance, a major consumer electronics manufacturer ran an ad in this year’s Super Bowl to promote its HD-DVD player, however, it opted to run the spot in SD. This led to negative press from an industry trade magazine questioning how much of a leader in the technology sector it really is given it opted not to demonstrate it in HD. Thus, it is important to clearly establish advertising objectives from the outset to determine HD’s compatibility with one’s brand.
Impact of HD on Consumer Engagement
While HD has limited penetration, published research done so far (albeit also limited) points to HD advertising being more effective in key engagement metrics such as commercial recall and intent to purchase. For example, one study done by Discovery Communications showed that commercial recall for HD ads viewed on HD channels was three times higher than the same ads viewed in the same programs in SD on SD channels. Additionally, intent-to purchase was 55% higher, and more viewers found spots “very enjoyable” in HD. This advantage is expected to decrease as HD achieves mass penetration and the HD picture becomes commonplace, but that is likely going to take several years.
Additionally, Nielsen found that people who viewed the 2008 Super Bowl in HD were able to recall 21% more commercials than those who viewed in SD.
To date, there has not been any research conducted to see if there is a negative impact on consumers when viewing an SD spot on an HD channel. However, anecdotal evidence suggests there may be one. One of the “top complaints” voiced by HD viewers during 2006 focus group research done on behalf of inHD (the former ad supported HD cable channel that is now Mojo) was that SD ads were “disruptive”. Additionally, viewers stated that SD advertising in HD programs indicated that “the advertiser doesn’t care”.
For now HD penetration is still low, and viewership appears to be even lower. Advertisers must weigh the importance of reaching this minority against paying production premiums and specially tailoring their spots. But as HD penetration continues to increase, as consumers become accustomed to tuning to HD channels, and as cable/satellite operators expand their HD lineups, more advertisers will produce their spots in HD. Whether HD advertising makes sense needs to be determined on a brand by brand basis, based on objectives, targets, production budgets, and creative elements. It is important to consider that a brand that is the first in its category to advertise in HD may create a competitive advantage for itself. Conversely, a brand in a heavily HD advertised category will likely need to advertise in HD to prevent itself from being at a disadvantage.