Meeting the Digital TV Deadline

With the analog-to-digital changeover a little more than a year away, owners of rabbit-ear sets must decide: a new set, pay TV, or a converter box

by Olga Kharif

Getty Images

• View Slide Show

The picture has been going out on Tom Gilbert's quarter-century-old rabbit-ear Sony (SNE) TV set for years. But what finally forced the Los Angeles resident to purchase a new TV is the prospect that before long, he could lose the signal to many of his favorite channels.

Gilbert and millions of U.S. consumers like him have just over a year to get ready for the government-mandated switch to digital TV from the less efficient, decades-old analog system. Federal officials say the upgrade will free big chunks of valuable broadcast airwaves for public safety providers, such as police departments, and for consumers will provide a sharper, more vibrant picture. Come Feb. 17, 2009, some 1,760 stations will cease sending analog signals and begin broadcasting in digital format only. Only community-based broadcasting will remain available in analog.

To ensure uninterrupted program viewing, people like Gilbert who still use antennas to pick up a signal will have to buy a new digital TV, get an analog-to-digital converter, or buy a subscription to a cable or satellite TV service. "The TV was so old, and it wasn't digital anyway, so I decided it was time," says Gilbert, who bought a TV set by Dynex, a Best Buy (BBY) brand.

Sales Fueled by Fear

Some 13.5 million U.S. households, or 12% of the total, will have to make similar decisions in the next 12 months, which will fuel a demand boom for digital TVs, converters, or subscription services. The extra purchasing will be welcome news to a consumer electronics industry bracing for a recession—a time when consumers will defer nonessential purchases. "Most things that you'd go into an electronics store for can wait," says Arnie Berman, chief technology strategist at Cowen & Co.. "But there's a deadline associated with this. It's unprecedented. If people don't do something, they won't be able to watch television."

Government subsidies will help goose sales of the converter boxes that translate digital signals back into analog signals legible to old TVs. The National Telecommunications and Information Administration (NTIA) is giving away as many as two $40 coupons per household to buy government certified converters. Among those approved by NTIA are devices from EchoStar (DISH), Philips (PHG), which owns the Magnavox brand, and Venture Electronics, which distributes RCA-branded machines. The NTIA received requests for 2 million coupons the first week it started accepting requests.

By mid-February, the earliest converter box models from a variety of makers including LG will go on sale in some 15,000 U.S. retail stores. The Consumer Electronics Assn. (CEA) estimates manufacturers will sell 25 million converter boxes, typically for $50 to $70 apiece, during the transition. Households that have several TVs will have to buy multiple boxes.

Retailers Strategize

Many consumers probably will take the same route as Gilbert, opting for new TVs. Stephen Jorge, vice-president of sales for Venture Electronics, estimates 20% of affected households may purchase TVs instead of the types of converters his company distributes. The CEA expects an 18% gain in TV unit sales this year, to 31.8 million units—compared with a 15% increase in 2007—when makers like LG were on a roll (BusinessWeek.com, 1/16/08).