With digital transition, more focus on smaller TVs

The digital transition has already unleashed a surge in sales of converter boxes to consumers who want to keep their existing TV sets, and an uptick in cable and satellite TV service sales for Americans who want to upgrade.

Now, retailers are hoping that consumers will turn their attention to replacing analog TVs in bedrooms and spare rooms that are not connected to cable or satellite service.

"Those are good candidates for over-the-air digital televisions," said Ross Rubin, director of industry analysis at the NPD Group, a market research firm based in Port Washington, New York.

The U.S. government spent about $2 billion and 13 years to reach the Friday deadline for the final 1,000 broadcasters to switch to digital transmission, freeing up analog signals for local police and firefighters. About 760 broadcasters already made the change before Friday.

To help American consumers get ready, the government distributed some 59 million coupons -- each worth $40 -- to help defray the cost of buying converter boxes. Only about half have been used so far, meaning there will continue to be some sales over the next 90 days until the coupons expire, according to analysts.

The exercise has been a cash cow for converter box makers and retailers like RadioShack Corp.

"Radio Shack has clearly benefited from very significant sales of converter boxes over the last several quarters," said Barclays Capital's Michael Lasser. The surge in DTV box sales -- which generated about $200 million last year -- is temporary and has already been priced into the stocks, Lasser said.

Now, he says, the trick is how well Radio Shack can capitalize on increased store traffic by placing DTV boxes next to other peripherals designed to catch the buyer's eye.

"This is just another step in the evolution of Radio Shack to define its niche in the rapidly changing marketplace for consumer electronics," Lasser said.

Cable and satellite companies saw a boost in first quarter earnings from the digital transition.

Comcast Corp and Time Warner Cable Inc posted higher-than-expected quarterly profits, and raised the possibility of more subscriber additions in the current quarter. But both also said customer growth will likely slow in the second quarter compared with the first quarter, with the U.S. economy not yet out of the woods.

COSTLY FOR INDUSTRY

The digital TV transition was initially set for February but was delayed by Congress when it became clear that nearly 6 million households were not yet ready.

Currently, about 2.5 percent of American TV-watching households, or 2.8 million, still rely on antennas to receive television shows this week, according to government officials who cited a study by the Nielsen Company.

The transition ordered by Congress to free up analog signals for public service use has been costly.

Broadcasters spent $5 billion in infrastructure upgrades and another $1.2 billion on consumer education campaigns, according to the National Association of Broadcasters.

The government is also providing AmeriCorps volunteers to help install the DTV boxes.

Commerce Secretary Gary Locke told reporters he was surprised to find elderly consumers better prepared for the transition than younger, Internet-driven consumers. "Maybe it's because they (the younger consumers) rely on new forms of media for news and programing and don't care about television anymore," Locke said.

(Reporting by John Poirier; Additional reporting by Ian Sherr in Chicago; Editing by Gary Hill)