ITV Digital needs to be rethought
So, Carlton's long-suffering shareholders have finally run out of patience for beleaguered terrestrial digital service ITV Digital, writes Claire Billings.
Looking back at the evidence over the last 12 months and the troubles the sinking service has caused its owners, the business's performance would drive almost any financial investor to despair.
Last week's news that ITV Digital is offering monthly subscription packages for as little as £1 to counter the effects of its burgeoning churn rate must have made Carlton and Granada shareholders wince at the thought of what their money was being used for. Maybe they should take a leaf out of debt-ridden NTL -- it is planning on putting prices up. Now there's a thought.
This news rubbed salt into the fresh wound left when Carlton was booted out of the FTSE 100 last month, while former ITV rival, and takeover target this time last year, United Business Media managed to avoid relegation.
To be fair, Carlton and Granada, as well as rebranding ONdigital as ITV Digital and overhauling their own operations, undertook the complete revamp of the ITV platform. This saw the renaming of ITV as ITV1 and the creation of premium pay-TV channel ITV Sport as part of its ITV Digital offering.
The sports channel is the key. It is already being hailed as the company's saviour as ITV tries to emulate the business model that has worked so well for rival BSkyB, which now celebrates more than 5m digital subscribers. Reports suggest that ITV Digital is attracting more subscribers since the channel's launch in August.
But even this appears not to be enough or enough quick enough for ITV Digital.
In July, ITV Digital had 1.135m subscribers adding 48,000 that quarter, but analysts remain unconvinced. They say that even if its growth rate has increased this quarter, it is unlikely to hit the break-even target of 1.7m subscribers until 2004, which means much more investment with little return.
And that is a problem. At the weekend, it was reported that investment bank ABN Amro was concerned about a funding gap at Carlton. Carlton and Granada have both seen their share prices and credit ratings fall in the last year and, short of cash, the question is now what they can do to turn the service's fortunes around.
There are a number of options and, depending on what party you represent, they come with varying degrees of attraction. For institutional investors, the most attractive option would be to close the ailing business down.
If ITV Digital was forced to close, this would seriously thwart the government's plans to convert the country to digital TV by 2010. It might well serve the government right, for it has so far shunned responsibility for ITV Digital, despite calls from both heads of its struggling parents.
Abandoning terrestrial digital TV altogether is not an option, because it plugs the gap left by the limitations of satellite TV, which is unavailable to around 3m homes because of reasons such as planning, and cable, which collectively reaches no more than 65% of homes.
It is fair to say that the closure option is not an option favoured by Carlton and Granada.
From press reports, what Carlton and Granada are seeking is a face-saving partnership. According to the various reports leaked out over the last few months, they have been holding talks with everyone and anyone with an interest in digital TV, including NTL, the BBC and most recently BT. So far these have amounted to nothing.
The bottom line is ITV Digital needs help and it seems a little unfair to leave part of the future of digital TV in the UK down to two companies, already facing an uphill challenge to survive the media recession.
If the government wants to come anywhere close to achieving its analogue switch-off target in 2010 it will have to find a way of subsidising ITV Digital. It is too much to expect just two companies to carry the can for a concern which is of such national importance to the government and the industry, if the population is to gain access to digital services.
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