Media Forum: Should ITV switch to pay-TV?

ITV's digital channels may become subscription-based.

There are those in the marketplace who've long maintained that the notions of "ITV" and "digital" really don't go together at all - and perhaps never will. In hindsight, it was perhaps ominous that the first collision of the two concepts, the aptly named ITV Digital, collapsed in such a piquant cocktail of farce and acrimony back in March 2002.

Since then, so the critics argue, digital strategy has been less than deft. It took the network an age, seemingly, to work out what to do with ITV2, for instance. Its acquisition record in the online space has been woeful and it has never quite managed to produce a web TV brand to match the BBC's iPlayer.

Even a matter of weeks ago, just before the revelation that ITV's executive chairman, Michael Grade, was planning to stand down, there was an undercurrent of criticism arguing that one of the problems of his regime (if, indeed, there had been genuine problems) was that he didn't "get" digital.

So it may not come entirely as a surprise to discover that the network is again reviewing aspects of its strategy and is pondering whether to turn ITV2, ITV3 and ITV4 into subscription-tier channels. They'll have to come off Freeview as a consequence - and this would mean the loss of around ten million homes, with ratings and ad revenues falling as a consequence.

This is no small matter. ITV's digital family has actually been a significant ad revenue success story, allowing the network to claw back some of the revenues it has been losing from ITV1. On the other hand, no-one's betting the house on ad revenues currently - and further losses on that front could be counterbalanced by the share in subscription revenues the network could expect to receive from Virgin Media and BSkyB.

So it's an idea that's surely worth exploring, even in theory, Richard Oliver, a managing partner, investment, at Universal McCann, argues. He says: "ITV should always explore all the options open to it. On the other hand, it should also be worried about what sort of message this sends to the market. It would make people reassess its position as a public-service broadcaster, for instance, and, of course, there will be those who wonder what this says about its long-term relationship with advertisers."

Chris Locke, the trading director of VivaKi Trading UK, feels it's a non-starter - and the idea smacks of strategic muddle. He explains: "ITV has done a good job building up its Freeview business. It allows it to get back the money it loses from ITV1 (due to the constraints imposed on the network under CRR). I'd be amazed if ITV management genuinely wants to halve the audiences of the ITV digital channels. ITV's share of ad revenues (across its whole family of channels) has been holding steady for the last couple of years. The digital channels take well over £200 million. Can it afford to lose £100 million?"

It might be worse than that, because it could affect the airtime sales position of ITV1 as well, Azon Howie, Carat's broadcast director, concedes. It's still worth exploring, though, he adds: "You can understand why ITV might be looking at this because, two or three years ago, subscription revenue overtook TV advertising revenue in the UK. And, this year, subscription revenues have continued growing while the advertising market has been contracting."

But Andy Benningfield, the trading director of Maxus, can't see it being remotely feasible. He cites two reasons. First, current Freeview viewers just don't need the hassle and expense of migrating to a subscription supplier - just so they can watch ITV's digital channels. And second: "ITV2 is a must-have for many current digital terrestrial TV viewers, mainly young adults. But let's be honest, they aren't the ones holding the purse strings. In April and May, 42 per cent of all individual impacts on ITV2 were delivered via Freeview, 35 per cent via digital satellite and 23 per cent via cable. To make it viable, you'd need a very large shift from free to subscription. It would be a massive ask."

MAYBE - Richard Oliver, managing partner, Universal McCann

"If advertisers are spending less money, then we have to accept broadcasters have to look at the business model of TV. But people would start questioning its status as a (commercial TV) market leader."

NO - Chris Locke, trading director, VivaKi Trading UK

"The ITV digital channels would lose revenue - and I'm sceptical about whether they would take anything like the same amount from subscription revenues. I can't see that being a good proposition for the shareholders."

MAYBE - Azon Howie, broadcast director, Carat

"You can understand why ITV might be looking at this. But it's a complex issue. It's not just about whether ITV can get from subscriptions what it might lose in advertising. There's more at stake here."

NO - Andy Benningfield, trading director, Maxus

"I doubt it would generate enough revenue to offset a loss in audiences - a loss that would consequently erode ITV's share of total revenue in the annual negotiation round. In this period of austerity, my intuition tells me this is something British people could probably do without."

- Got a view? E-mail us at campaign@haymarket.com

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