The Hong Kong government has discussed for years the introduction of digital broadcasting for the free-TV operators, but now it is finally materializing. Hong Kong's two terrestrial TV broadcasters, unlisted Asia Television and Television Broadcasts (0511), will roll out the digital broadcast service by the year end, paving the way for the existing analog service to be shut off within five years and giving the laggard media stocks the chance to rise.

Digital broadcasting brings with it the promise of clearer pictures, the introduction of new channels, and the possibility that the moribund media industry will be revitalized.

For unprofitable ATV, digital broadcasting offers a gleam of hope, with the idea that new channels could help the broadcaster challenge perennial front-runner TVB.

When digital terrestrial television is first launched at the end of this year, only 50 percent of the SAR will be covered by the new digital signals.

In 2008, the two broadcasters must cover 75 percent of Hong Kong with their new digital signals, according to the government plan.

Full coverage of the SAR will be achieved by the end of 2011, paving the way for analog broadcasting services to be shut off as early as 2012.

ATV, which sources say plans to list early next year, will spend more than HK$600 million on the digital terrestrial television project. The cost will go up to HK$900 million when the relocation from Broadcast Drive to Tai Po Industrial Estate is taken into account, ATV senior vice president for corporate development and external affairs Kwong Hoi-ying says.

TVB previously said it will invest a total of HK$700 million on developing its digital TV services.

By the end of the year, both ATV and TVB will be sending out both analog and digital signals, marking the beginning of a five-year transition period when both kinds of broadcasting will coexist.

ATV says it will open four new digital TV channels, while TVB says it has not yet decided the exact number of new channels to be launched. Analysts expect the dominant operator to launch two new channels once it starts the digital broadcasting.

Of the digital TV channels, the two broadcasters are also required to air at least 14 hours per day of high definition programs.

HD programs offer a clearer image and use a wider, 16:9 aspect ratio.

TVB is continuing to invest for the future, Citigroup analyst Jason Brueschke says.
"This move to digital remains a critical event, in our view, as TVB will launch a new HD channel and digitization could help TVB reach a more favorable revenue share with Guangdong cable operators carrying its spillover signal," Brueschke says.

TVB revenues from China grew by 47 percent year on year to HK$170 million in 2006.

The stronger signal provided by the digital broadcast will make it easier for TVB programs to be shown in Guangdong province, and the Hong Kong terrestrial broadcasters' choice of the national standard for digital broadcasting paves the way for further forays into the mainland.

ATV's Kwong says the station faced short-term pressure from the move to digital broadcasts but was positive about long-term prospects.

He says ATV had already invested a lot of capital to convert to digital broadcasting and this was pressuring the station.

Production costs per TV program would be higher after the introduction of digital broadcast, mainly due to higher requirements for lighting. The production period would be longer than the present and cost more.

The new channels will have special themes targeted at specific segments of the population, which will help advertisers to know their audience better. That will be different from the integrated channels they have now.