Media Forum: Is ITV adapting to multichannel reality?

Its chief executive, Mick Desmond, believes digital is as much of an opportunity as a threat to ITV.

ITV was almost duty-bound to come out fighting this spring. Following the merger of Carlton and Granada at the end of 2003 and a growing realisation over the first couple of months of 2004 that the Contract Rights Renewal trading mechanism was going to work more or less smoothly, the network was clearly getting its proverbial ducks in a row.

Time, then, for the big vision thing. Time to show just what the benefits of the merger were actually going to be. Last week, Mick Desmond, the chief executive of ITV Broadcasting, delivered. He was speaking at the ISBA annual conference - an interesting forum, given that it has often been something of a bear pit for ITV bosses, especially during periods of rampant airtime cost inflation.

But Desmond was in bullish mood and he even attempted to lay into that old assumption that the best ITV can hope for is a future of managed decline.

The orthodox view, he admitted, is that multichannel is bad news for ITV.

Especially when you remember that the Government is still committed to switching off analogue by 2010.

He countered: "The reality is, that if you scratch beneath the surface of the headlines, you'll see that ITV is performing robustly in the multichannel world. While the number of individuals receiving multichannel has increased by more than three million in the past year, ITV1's peaktime share has been maintained at 31.5 per cent. If you look just at Freeview homes, ITV1 performance is more impressive, which is good news because this is where all the digital expansion is these days."

ITV plc is clearly more comfortable these days to view itself as a family of channels rather than a very big ITV1 dog wagging a very small tail.

And now the company is looking to launch ITV3 and a dedicated children's channel to complement the increasingly successful ITV2. Digital is as much of an opportunity as a threat, Desmond maintains.

Upbeat stuff. But will the market buy it? Nick Theakstone, the investment director of MindShare and the managing director of Group M, isn't so sure.

He points out that Desmond's audience share figure (which is just for peaktime) doesn't tell the whole story. In multichannel homes, ITV1's share of all viewing is down to 19 per cent.

Theakstone says: "Digital presents so many potential threats to ITV - and, as for opportunities, it's a pity it made such a pig's ear of ITV Digital. If handled right, that could have and should have been as successful as Freeview.

"And the evidence is there in every single home that has gone multichannel: multichannel is a threat to the audiences not just of ITV but of Channel 4 and five too. Also, while it's good for ITV plc for ITV2 to be retaining some of the audiences leaving ITV1, the fact remains that the situation overall isn't good news for ITV1 - and the strength of ITV1 is surely of major importance to the future of the company. So while it is encouraging that it has an optimistic strategy, I think some of the things (Desmond) said are slightly odd. I'd be more tempted to err on the side of caution."

David Walker, the media director of Kellogg, says it's encouraging that ITV plc has confident plans for the multichannel sector. He adds: "The performance of ITV2 has been encouraging over the past year and I believe there are real opportunities for ITV within multichannel especially related to its ability to cross-promote and trade audiences between its channels. I can see more upsides than downsides for ITV in the digital world. The key thing, though, is all about how ITV interacts with its customers. That will be the main thing we will be looking at over the course of this year."

And Chris Hayward, the head of television at ZenithOptimedia, is similarly supportive: "I thought this was a positive, yet responsible speech. ITV's problem in the past was often that it didn't have a realistic view of itself but that has changed over the past couple of years and that has to be applauded. ITV2 is a strong proposition these days and ITV's ability to schedule it and cross-promote it has come on in leaps and bounds. It is also aware of the range of competition it faces and its merits and, more importantly, ITV1's weaknesses when you look at it in the context of the whole market."

And, he concludes, the market should resist temptations to seek out the downsides: "Your view on whether ITV1 can actually grow its audience share or not in a world where the number of multichannel homes is increasing is arguably a secondary issue. The main point is that ITV now has a positive and more realistic philosophy."

"ITV2 has become the fastest-growing channel for the past two years. It has recently been repositioned as the flipside of ITV1, a mainstream entertainment channel with a younger balance ... ITV2's success confirms we have started to learn how to operate in multichannel." - Mick Desmond chief executive, ITV Broadcasting

"We all know from experience that when you move from a few channels to a plethora, your viewing of the few you used to have tends to dissipate. I think everyone knows that in the long run, multichannel means that other channels will eat into ITV viewing." - Nick Theakstone investment director, MindShare

"We're very positive about the way that ITV is approaching the future. We all want an ITV1 that's continuing to deliver large peaktime audiences - and I don't believe it is inevitable that ITV1 should lose audience share." - David Walker media director, Kellogg

"The challenge for ITV1 moving forward is to sustain the interest of younger demographics and I think that it now understands the important of having mass-market programming that doesn't turn away younger viewers." - Chris Hayward head of television, ZenithOptimedia.

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