The recent closure of two of Germany’s HDTV channels has cast a shadow over European hopes for a rapid transition to high definition, according to Strategy Analytics. The report concludes that Europe’s television providers should concentrate their resources initially on building pay television rather than advertising-based business models in order to reach the critical mass of HD content and receivers necessary to make HDTV a self-sustaining business.

“It was always highly ambitious to expect advertising revenues alone to support HD channels in the early years,” comments David Mercer, Principal Analyst. “Significant audiences cannot be built until the market has been seeded with millions of HD receivers – and this was always going to take a number of years.”

The report finds that only five per cent of Europeans who currently own an HD-Ready TV are, in fact, watching HDTV channels. In spite of these early difficulties, the report concludes that the number of European HDTV subscribers will grow steadily towards 3.5 million by the end of 2008. By 2012, Strategy Analytics predicts that 20 per cent of all European households will be watching HD channels.

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