The majority of HDTV sets sold to date have been very large. For example, iSuppli estimates that roughly two-thirds of the high-definition televisions sold in the last two years had a diagonal measurement greater than 25 inches—and roughly half of those sets measured 40 inches or larger. Many consumers are buying large-screen televisions for their size rather than for their ability to display high-definition video.

However, the fact that these televisions support high definition has created a market for other high-definition products and services. As a result, the “chicken-and-egg” problem that often hinders acceptance of new technologies has been partly resolved for high-definition video.

The emergence of high-definition DVDs will likely push HDTV further into the mainstream. In the US, two high-definition DVD formats, Blu-ray and HD-DVD, are expected to lead the charge. Blu-ray players are already shipping, and HD-DVD players are expected to begin shipping by the end of 2005. Unfortunately, the players suffer from high prices—both types of players cost approximately $1,000.

Price is not the only problem facing high-definition DVDs; the availability of multiple, incompatible formats is likely to confuse consumers and slow sales. Matters are particularly confusing in China and Taiwan, where an alphabet soup of high-definition formats including EVD, FVD, HVD, and HDV have been introduced. Of course, a DVD player is only useful if movies are available in the appropriate format, and it is not yet clear which formats will win the most studio support.

Consumers can also get high-definition content from broadcast television, cable service and satellite service. HDTV is important to cable and satellite service providers because new subscription rates are slowing. As a result, cable and satellite service providers are increasingly concerned with keeping existing subscribers. HDTV is one way service providers can differentiate themselves and discourage customers from switching to a different provider. Service providers are also attempting to retain customers by providing set-top boxes (STB) with integrated personal video recorders (PVRs) and by providing video-on-demand (VoD) services. Satellite service providers cannot directly provide VoD services, so they are linking up with telecommunications providers who can provide VoD via video-over-DSL. EchoStar has started trials of such services.

Set-top boxes with integrated PVRs threaten the business of standalone PVR vendors like TiVo. Similarly, successful VoD services would pose a challenge to traditional video rental outlets like Blockbuster and to DVD-by-mail companies like Netflix. Not surprisingly, TiVo and Netflix recently announced a deal to provide movie downloads to TiVo subscribers.