ITV Digital divide

Carlton, Granada ponder future of platform

LONDON — It’s crunch time for ITV Digital, the U.K.’s troubled terrestrial pay TV platform.

Speculation is rife that Carlton Communications and Granada Media — the two big ITV companies and co-owners of the business — are contemplating drastic measures.

The best-case scenario is that of bringing in a fresh backer to help shoulder the burden of the venture; the worst is pulling the plug.

Last week, ITV Digital announced it had signed up an additional 82,000 subscribers in the third quarter of the year, an increase that surpassed expectations and took the total tally to just over 1.2 million.

But the platform has proved a massive financial drain on Carlton and Granada, who are additionally impacted by the downturn in TV advertising, particularly since the Sept. 11 terrorism.

Roughly £800 million ($1.1 billion) has already been spent, and the companies project a total $1.6 billion will have to be invested before ITV Digital breaks even, perhaps in a year or so at the current magic number of 1.7 million subs.

That is still a far cry from the subscribership of satcaster British Sky Broadcasting, ITV Digital’s bitter rival, which is now believed to have north of 5.5 million customers.

Meanwhile, Merrill Lynch has warned that Carlton is exposed and could post a hefty $248 million loss next year. Granada is in line for a more modest $59 million drop in the red bucket.

The consensus is that something has to be done. Even the British government has waded in and is consulting London’s financial community as to how to proceed.

Change was already in the cards: The government previously signaled its intention to radically deregulate the sector.

What Carlton and Granada would like, and have been seeking for some time, is a relaxation of the media-ownership restrictions that preclude a merger of the two companies. Getting together could create substantial savings.

“I think they are using this crisis as a political argument to get one ITV,” one observer says.

New rules also could provide a window of opportunity for an outside investor.

There have been exploratory talks, for example, with BSkyB, which was part of the original consortium behind ITV Digital before it was forced to back out over regulatory concerns. Granada is believed to pushing for BSkyB to be allowed to come back onboard.

RTL Group also has sniffed around but has indicated it is interested in ITV, not ITV Digital. It is unlikely, however, to move even in the medium-term because at present it would have to sell its majority stake in Channel 5.

In the short term, ITV Digital and BSkyB could agree to share sports programming, a boost to both companies. ITV Digital pays through the nose for Sky Digital’s sports channels, while Sky would be happy to access the new ITV Sport Channel, home to pan-European Champion’s League soccer.

ITV and BSkyB also may be on the cusp of agreeing to carriage for ITV and ITV2 on Sky Digital, which has been withheld to help make ITV Digital more attractive to consumers.

Saving ITV Digital, meanwhile, is in the government’s interest.

It plans to eventually shut-off and sell off the analog signal through which most Brits still receive TV, optimistically as early as 2006.

If ITV Digital were to go, that agenda would be in jeopardy. ITV, like the BBC, is a national institution; damaging it would be an embarrassment.

But some analysts suggest ITV Digital’s subs could be sold off to satcaster BSkyB and cablers NTL and Telewest. The BBC could then pick up the digital terrestrial slack with its own, nonsubscription, set-top boxes, to be used to receive the pubcaster’s channels and other free services, including ITV, Channel 4 and Channel 5.

The Beeb admits to be investigating bringing its own decoders to the market.

In all of this, Carlton and Granada only own up to be exploring every option.

Certainly, the complexity of the situation means there is unlikely to be any significant movement before early next year. And what the landscape will be like then for Britain’s TV companies is anyone’s guess.

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