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Tuesday, 23 April, 2002, 10:28 GMT 11:28 UK
What next for ITV Digital?
Football fans
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By Torin Douglas
BBC media correspondent

So who might buy ITV Digital?

It's hardly the most attractive media opportunity. After all, if the two biggest ITV companies cannot make a go of it, with all their financial muscle and opportunities for cross-promotion and cross-programming, who can?

The problem is that the most likely candidates - the other big broadcasting companies - all face legal, financial or regulatory hurdles.

BSkyB stands to lose 60m in revenue if ITV Digital shuts down

Yet unless a buyer comes forward, the whole future of pay-television through an aerial - rather than a satellite dish or cable - is at risk.

That in turn severely damages the prospects for the government's hopes of switching the whole nation over to digital television by the year 2010.

Strong motive

The most likely candidate might seem to be BSkyB, the one company that has made an undoubted success of digital television.

Not only has it shown it can provide a service that millions of customers are prepared to buy, it is also expert at customer-management - a skill all its rivals are sadly lacking.

The regulator would be unlikely to let BSkyB back in again at this stage, except as a very very last resort

It also has a strong motive for wanting the ITV Digital service to be rescued. Several of its channels - Sky One and the sport and film services - are shown on ITV Digital, reaching several million viewers, and it stands to lose 60m in revenue if the service shuts down.

But the government and regulators will not wish to see BSkyB take over. It already dominates the pay-television market - to the extent that some blame it for exacerbating ITV Digital's problems.

Too powerful

It has driven a very hard bargain when selling its channels to rival digital platforms and it still isn't showing the ITV Sport channel to the five million homes that take its satellite service.

That helped undermine the value of the Football League contract to ITV Digital.

Ironically, BSkyB was originally a partner in the company that became ITV Digital. But the Independent Television Commission, backed by European competition regulators, ordered it out of the consortium, saying it was already too powerful.

It would be unlikely to let it back in again at this stage, except as a very very last resort.

Huge interest

In other circumstances, the big cable TV companies might have been seen as possible buyers. Indeed NTL was one of the original bidders for the digital terrestrial licence and lost to the Granada-Carlton consortium.

But now both NTL and Telewest are burdened with billions of pounds of debt - far greater than that saddling ITV Digital - and are in no position to help.

The BBC cannot run a pay-TV service and so is in no position to take over ITV Digital as a going concern

What about the BBC, which has a huge interest in keeping the digital terrestrial platform in business?

It is launching several digital-only channels - two for children, CBBC and CBeebies; the arts and discussion channel BBC4; BBC Choice for young adults; along with the existing BBC News 24 and BBC Parliament.

These have been funded by an increase in the licence fee, awarded by the government to help the BBC drive digital take-up among viewers who don't want - or cannot afford - the pay-channels.

Very keen

The problem is that the BBC cannot run a pay-TV service and so is in no position to take over ITV Digital as a going concern.

What it can do is encourage the take-up of free-to-air digital television, through the new 100 box being produced by Pace and other manufacturers.

It would be very keen to see the existing million or so ITV Digital boxes remain in customers' homes, so that even if the pay-services stopped, they could still pick up the free-to-air digital services.

Carlton and Granada could buy back the service on the cheap, as happened with Eurotunnel and Canary Wharf when other buyers failed to materialise

And if no buyer for the company is found, the BBC might be able to provide a sustaining service - strictly on a short-term basis - perhaps in conjunction with BSkyB while a long-term solution is found.

But if a buyer is to be found, it is likely to come from elsewhere. There is talk in the market of a possible management buy-out, backed by a venture capital company.

RTL, the big European broadcaster which controls Channel 5 and Thames Television, has the money and the ambition, but seems unlikely to take on such a risky venture.

Indeed Channel 5 prefers the idea of digital terrestrial TV becoming a free-to-air service.

Clubs' outrage

The other possibility, fancied by cynics in the City, is that Carlton and Granada could buy back the service on the cheap, as happened with Eurotunnel and Canary Wharf when other buyers failed to materialise.

That is strongly denied by sources within the two companies and would cause outrage among Football League clubs as some of them face going out of business.

Yet stripped of its expensive Football League contract and with better management, a service that can bring dozens of TV channels to millions of viewers through an ordinary TV aerial ought to be attractive proposition.

Sadly, it doesn't seem it at the moment.

See also:

23 Apr 02 | Business
ITV Digital in race to find buyer
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