The TV Revolution Sweeping Europe

Deirdre Mann swears she never felt like a dinosaur. Although she knew plenty of people who got dozens of television channels via cable or satellite, the 65-year-old retired real estate agent in Sussex, England, was content to stick with plain old analog TV, picking up four channels through her rooftop antenna. After all, it was free, compared with $30 to $40 a month for cable or satellite.

Then Mann visited friends near London and was awed by the crystal-clear reception and wider selection of programs they got via Britain’s Freeview digital-TV service. Within weeks, Mann plunked down $149 for a Grundig set-top box that lets her receive the free, overthe- air signals. “The picture is better for regular BBC channels, and I watch a lot of new ones that I never got before,” she says.

Mann is one of nearly 5 million Brits who now get Freeview, making it Europe’s most successful digitalbroadcast service. Launched in 2002 by the BBC, Rupert Murdoch’s British Sky Broadcasting Group (BSY ), and transmission company Crown Castle International Corp., it offers 32 TV channels and 20 radio stations.

Freeview’s popularity is all the more remarkable because Britain was the scene of an earlier digital-TV debacle, the 2002 collapse of broadcaster ITV Digital. The $15-per-month pay-TV service, launched in 1998 by Carlton Communications and Granada, which later merged, went broke after paying too much for soccer rights and failing to attract enough subscribers. Freeview rose from its ashes, and thrived by ditching monthly fees in favor of old-fashioned advertising revenues.

FOLLOWING SUIT

Britain isn’t the only European country jumping into free digital broadcasting. Sweden launched a service in 2002 and saw 88% growth in subscribers last year. Germany is rolling it out region by region. A million Italian viewers now get over-the-air digital TV. And on Mar. 31, France switched on its Télévision Numérique Terrestre, or TNT, with plans to cover 85% of the country by 2007.

The emergence of digital broadcasting threatens to shake up TV in the Old World. After all, three-fifths of Europeans still get only analog TV -- usually just a half-dozen channels. New digital terrestrial TV (DTT) services such as Freeview and TNT, offering up to six times as many choices, will attract 16.5 million European households by 2008, up from 6.3 million now, predicts London market researcher Informa Media Group. That could slow growth for cable and satellite services, which will have to beef up offerings or drop prices to attract new customers. “This is a huge competitive threat to cable and satellite,” says Windsor Holden, analyst with Juniper Research in Basingstoke, England.

Europe’s digital lead also could set a model for the rest of the world. The U.S. Federal Communications Commission has mandated inclusion of digital tuners in all TVs larger than 13 inches by 2007. Japan and Korea also are moving to DTT. Still, analysts say prospects for digital broadcast are best in countries with poor satellite and cable penetration. In the U.S., for instance, more than 85% of households pay for satellite or cable and may not care to switch.

Europe’s more promising digital changeover is driven by a broad assortment of interests. First are national governments, which want to push broadcasters off today’s analog-TV frequencies to reclaim and auction off the spectrum. Such sales could yield billions in revenues, as well as open up new frequencies for emergency services and mobile networks. Britain will close off analog TV by 2012. And Spain has moved its target date forward by two years, to 2010, even though digital broadcasting won’t launch there until later this year.

Another group standing to benefit is makers of DTT set-top boxes, which go for $95 to $165. European companies such as Royal Philips Electronics (PHG ) and Thomson (TMS ) are already doing booming business in Britain and elsewhere, and they expect France to be a million-unit market this year. That’s drawing in competition from Asian rivals such as Paris-based Sagem and even Finnish mobile giant Nokia Corp., which sells a $645 box with an 80-gigabyte hard drive for recording TV shows and wireless links for showing camera-phone snapshots on the TV screen.

Nobody is keener on DTT than conventional broadcasters. Though their channels are already carried on cable and satellite, they see over-the-air digital as achance to broaden their audience and sell more ads. “We want to diversify our channels, and, of course, make more money,” says Philippe Holl, spokesman for French entertainment channel M6, which is launching a new music-and-movie station on TNT called W9. The risk is that the same number of advertising dollars will be spread among more channels. “Everybody gets a smaller slice of the cake,” says Juniper’s Holden.

DTT also could steal away viewers, a danger that pay-TV providers are already mobilizing to fight. French cable company Noos and satellite provider TPS say they won’t drop prices to combat TNT. But in anticipation of its arrival, they’ve plastered the Paris Métro with billboards promoting special offers and expanded services. Britain’s BSkyB is taking a more radical step. It has quietly rolled out a free, bare-bones satellite-TV service to fend off Freeview, in the hope that users will trade up later to pay-TV packages (NWS ).

Cable and satellite companies could also get help from the European Commission. Last July, it launched an investigation into whether subsidies offered in Berlin and Italy to speed the DTT switchover amounted to illegal state aid. Europe’s digital-TV wars are just getting started -- and if the result is lower prices and more programs, delighted viewers will be the beneficiaries.