Blighty TV biz thrown for a loop

Murdoch, Grade enter the scene at ITV

LONDON — Can two individuals transform the British television industry in the time it takes to air a miniseries?

Perhaps not, but the impact of BSkyB topper James Murdoch’s dawn raid for a 17.9% stake in ITV, Blighty’s embattled private terrestrial giant, combined with last week’s news that Michael Grade is defecting from the BBC to be ITV’s new leader, has turned U.K. TV inside out.

“This is fantastic news for ITV, which has finally been given some breathing space following months of uncertainty,” says Janet Goldsmith, joint managing director of media research outfit Mediatique.

“Grade’s appointment potentially has the power to transform ITV,” she adds. “My guess is that anyone thinking of bidding for ITV will now keep their powder dry for at least six months to see how this all pans out.”

“Michael Grade could prove a masterstroke,” says Paul Richards, media analyst at Numis Securities. “Further, with BSkyB having a blocking stake, and ITV appointing a credible new management team that deserves the opportunity to turn around the group, we expect bid speculation to evaporate.”

Twice this year ITV’s board rejected bids. First there was a private equity offer involving U.S. investment bank Goldman Sachs; then, in November, the web said it saw no strategic merit in merging with indebted cable combo NTL.

Others, including European broadcast giant RTL, were also believed to be weighing an offer for ITV, whose flagging stock price made it attractive to bidders.

The move of Grade, who stunned British media types by resigning as BBC chairman Nov. 27, to ITV gave it an instant lift and caught rivals off guard.

The mighty BBC is minus a leader as it attempts to salvage a round of messy and protracted negotiations with the British government over funding its activities for the next decade.

“People at the BBC are incandescent with rage at Grade abandoning us,” says a senior figure at the pubcaster.

Its bid for an above-inflation increase to the license fee, paid by all Brits who have TV sets in their homes — a bid personally headed by Grade — looks to be in trouble.

British Finance Minister Gordon Brown, the prime minister in waiting, seems determined to deliver a stern lesson in financial prudence to the pubcaster.

A report in the Financial Times suggests the BBC could find itself short upwards of £550 million ($1.045 billion) over the next 10 years if the government is tightfisted in how much it agrees to give the Beeb.

Blighty’s other broadcasting heavyweights, Channel 4, whose revenues have grown as ITV’s fell, and even BSkyB will be figuring out how best to respond to Grade’s appointment and the prospect of a rejuvenated ITV.

Channel 4 is afraid it could be squeezed by any joint initiatives undertaken by ITV and BSkyB, ITV’s biggest stockholder since Murdoch bought his stake for more than $1.75 billion.

Moreover, as Grade successfully ran Channel 4 for nine years following his departure from the BBC in 1987, the outfit needs no reminding of what an effective operator Grade can be.

“I have mixed feelings about Sky investing in ITV,” Channel 4 CEO Andy Duncan said before Grade’s appointment. “We will be looking very carefully at areas where they could collaborate — like sports and film rights — but maybe they will remain a silent partner.”

But that’s a big maybe.

Some analysts reckon Grade’s arrival at ITV may drive a worried BSkyB into taking further defensive action in the coming months; buying the stake in ITV killed off its NTL bid.

“Sky will not be sitting there watching ITV being re-energized without making a move to help itself,” predicts one expert. “A play for (RTL’s terrestrial channel) Five is in the cards.”

The relationship that Grade, who takes over as exec chairman Jan. 1, and James Murdoch are likely to forge has already got industry tongues wagging.

“I don’t know what Grade thinks of James, but he hates what Rupert Murdoch stands for and despises how much power he wields in the British media,” says someone who knows Grade well. “He will be alert to Sky overstepping the mark.”

For his part, Grade says: “We will obviously treat Sky in the same way as we would treat all shareholders. If there is anything that Sky suggests that will enhance value for all shareholders, we will take a look at it.”

As the nephew of Lew Grade, one of ITV’s original architects, Grade, 63, an instinctive showman famous for his red socks and cigars, feels an emotional bond to the net.

He first made a big impact in the business as ITV station LWT’s program topper in the 1970s, subsequently masterminding a revival at the BBC’s flagship web, BBC1.

However, critics complain that Grade could be a generation too old to have the right mindset to guide ITV to safety.

They argue the structural changes sparked by the emergence of an all-digital world favor a younger, more technologically savvy man like the 32-year-old James Murdoch, whose grasp of new media looks instinctive.

“ITV is not an overnight fix. One of ITV’s biggest challenges is to start investing seriously in online activities,” says analyst Richards.

“You’ve only got to look at what rivals like the BBC and BSkyB are doing online to realize how far behind ITV is. But just because Grade is in his 60s doesn’t mean he’s the wrong man to oversee this,” Richards adds. “It’s all to do with creativity and attitude. Rupert Murdoch is in his 70s, but he had the vision to buy MySpace.”

Grade allows it will be at least six months before any significant improvements filter through.

A priority is the performance of flagship web ITV1, repeatedly humiliated in recent years, not least by rival BBC1, whose all-hours share of viewing recently stood at 23.3% compared with ITV1’s 20.5%.

Grade will need to reverse this if he is to justify the rapturous reception he received upon arriving at ITV’s London HQ on Nov. 28.

Undoubtedly, for the first time since Carlton and Granada merged nearly three years ago, the web has a leader trusted to deliver the goods financially and creatively.

Ironically, if Grade starts to reinvest in ITV, in stark contrast to the cost-cutting by his predecessor, Charles Allen, ousted in the summer, ITV’s share price could plummet — and the predators may start circling all over again.