A cloud has appeared on media mogul Rupert Murdoch's horizon amid forecasts that his British TV satellite giant Sky is facing dangerous competition in the digital age from rival Freeview.

A report by UK media negotiating company Opera says Freeview, a free-to-air digital service developed by state-funded broadcaster, the BBC, will race into more homes than Sky by the end of next year.

And whilst the report concedes the quality and breadth of Sky's offering to viewers is far superior, its rival's overwhelming appeal lies in its low cost, one-off payment of as little as £30 ($55, €42).

The conclusions of the report are strongly disputed by Sky, which calls them "fundamentally flawed" and the figures, namely that Freeview is outstripping Sky sales by ten to one, "totally wrong".

Sky claims hundreds of thousands of Freeview boxes which feature in the report have been bought with the intention of being used in second rooms in UK homes, many of which also have Sky.

Despite the protestations, the report makes for uncomfortable reading for the satellite giant. The UK broadcast watchdog Ofcom says Freeview is already in 3.9 million British homes, and the winner in the viewing stakes is likely to be the commercial-free BBC.

And this is likely to be a problem for advertisers, claims the report. It says Barb (British Audience Research Bureau) figures show viewing of commercial television is considerably lower (60%) in Freeview homes compared to Sky homes (79%), although higher than analogue terrestrial households (52%).

DTV aside, the report also predicts online advertising spend could overtake radio advertising by the end of 2005.

It forecasts a 26.2% increase in online spend next year in Britain, to nearly £700m. This growth is due in part to the expansion and lessening costs of broadband, the greater creativity it allows, and to increasing consumer confidence in the internet.

Data sourced from Media Week (UK); additional content by WARC staff