The rise of free-to-air digital services continues to dominate the U.K. pay-TV market, according to the June 10 report on digital television by U.K. communications regulator Ofcom.

In the 2005 first quarter, the total number of digital television households in the United Kingdom grew by 2.5 percent to 15.4 million, according to Ofcom’s “Digital Television Update Q1 2005.” This is the sixth quarterly report on digital television issued by Ofcom.

Freeview, a digital terrestrial television offering, added 466,000 users in the first quarter to rocket through the 5 million household barrier by the end of March. To put Freeview’s growth in perspective, BSkyB, the direct-to-home satellite platform, added 87,000 subscribers in the quarter to reach 7.4 million total subscribers.

There are now 5.5 million households in the United Kingdom using free-to-view digital services, with viewers of free satellite services accounting for the remaining 500,000 households.

Digital services have penetrated just under 62 percent of the U.K. television market. Pay-TV digital satellite has a penetration rate of just a shade under 48 percent, while digital terrestrial television is in at just under 33 percent. Digital cable has 16.5 percent of the market, while free-to-view digital satellite is around 3 percent.

While satellite supplies digital television services to nearly half the homes in the United Kingdom, its grip on the market is slipping. In the third quarter of 2003, satellite accounted for more than 63 percent of the digital homes.

Despite BSkyB being just about on target to reach its target of eight million subscribers by the end of 2005, the ‘Freeview’ factor means it might not hit some of its longer term targets. In a piece of research out earlier this month, Morgan Stanley media analyst Sarah Simon wrote that she no longer believes that the operator will reach 10 million subscribers at the end of 2010. In a strong prediction, Morgan Stanley now believes the operator will have less than 9.5 million subs at the end of 2010. The main factor behind BSkyB’s not hitting its targets is the strong competition from DTT, a potentially stronger threat from cable, as well as the emergence of IPTV.

(Huw Rossiter, Ofcom, Huw.Rossiter@ofcom.org.uk)