MEDIA FORUM: Is ITV Digital proving too big a distraction for ITV? - The future of ITV Digital is on the agenda again. As we contemplate a recession is it becoming a dangerous diversion? Alasdair Reid reports

Ouch. Zenith Media gave ITV Digital a good doing over last week -

there's really no other way of putting it.



Arguably, managers at the digital television platform formerly known as

ONdigital have learned to take a bit of knockabout abuse as a matter of

weekly routine - but a handful of paragraphs in the latest edition of

Zenith's TV market report must really have hurt.



Zenith is one of ITV's biggest customers, its clout in the media

marketplace is such that City investors tend to listen to what it says

and the Carlton and Granada share prices are fragile enough as it

is.



The Zenith piece is, to say the least, scathing. It begins: "The

elephant in the room is ITV Digital." That's undoubtedly the front room

we're talking about, the one with the orange sofa that's seen better

days and the ludicrously expensive widescreen TV in the corner. The

elephant is presumably sort of whitish in colour. The article proceeds

to dismiss ITV Digital's breakeven targets as "fantasy". Following a

recent revision, ITV now believes it can make money on a household

penetration figure of 1.7 million. No chance, the report says.



ITV Digital is already scheduled to cost twice as much as originally

planned. But in reality the bill could be much larger than anyone has

even begun to imagine. "Failing divine intervention, ITV Digital should

be sold or dismantled with all despatch, because this money's not likely

to come back," Zenith says.



The document's author is Adam Smith, Zenith's head of publications. He

admits he was surprised about the reaction he's stirred up. But he says

that ITV's arithmetic is very clearly the business of advertisers,

especially now that a recession looms. He adds: "ITV has already sunk

£800 million into ITV Digital and is ready to send in another

£300 million to secure breakeven in a couple of years or so - a

figure that presumably covers any losses expected at ITV Sport. Zenith

forecasts ITV revenue to fall by £176 million this year. The ITV

Network Centre is spending £747 million on peaktime programming in

2001, but it will be much harder to do the same in 2002, when BBC1's

budget will, amazingly, be touching £1 billion."



In other words, the danger is that ITV is about to take its eye off the

ball where its core business is concerned. Surely it has had its chance

with digital and consequently now it has to cut its cloth far more

modestly.



Is it time, yet again, for ITV to reassess?



Nick Manning, the chief executive of Manning Gottlieb Media, says that

ITV's revenues could decline even more steeply than the Zenith

estimates.



"We believe it could be down by about £300 million this year

versus 2000. In buying the Premiership (football) rights, ITV Digital

has bet the ranch on a programming strand that was in the past one of

the key drivers of Sky's success. But whereas Sky managed to pick up

those rights when football was less coveted, and much cheaper, those

rights are now monstrously expensive.



Arguably, football has become over-exposed and is no longer the

penetration-driver it was, with plenty of it available on all platforms,

including terrestrial. Perhaps ITV's relatively low audiences for the

Saturday football show demonstrate that football's appeal is

waning."



Manning doesn't believe that ITV can maintain investment in both ITV1

and ITV Digital at a time of advertising recession - especially if very

low share prices make both Granada and Carlton vulnerable to

predators.



"The price of survival may be the sacrifice of ITV Digital. It can be

argued that the UK cannot sustain three paid-for digital platforms,

leaving satellite and cable to slug it out for subscriptions, while

digital terrestrial becomes entirely free-to-air," he surmises.



It is often forgotten that you don't have to be a digital platform owner

to be a player in digital television. But it's undeniable that being the

gatekeeper, or one of the gatekeepers, puts you in a position of

power.



For instance, if you own the set-top box in the living room, you

arguably "own" the family gathered around it of an evening. You don't

just know where they live, you know what they watch and what sort of

stuff motivates them to press the interactive button on their remotes.

You have the big picture. That could be worth a fortune.



However, Channel 4 has developed an adventurous and coherent digital

strategy that is platform neutral. Its first enhanced TV programming and

interactive advertising will premier soon on the Sky platform. Shouldn't

ITV be content with the same? After all, its interactive advertising

offering, primarily through Carlton Active, has been technologically

backward to date, hasn't it?



Andrew Howells, the managing director of BMPtvi, says: "It might be

cheap but you don't get very much. You can't really enhance a programme

and build content around it." So when it comes down to it, isn't ITV

Digital at best a distraction to the interactive television

community?



Howells adds: "It's true that, from our point of view, there would be

benefits to advertisers if you simplified the market and had fewer

platforms. And it's true that ITV could enhance programmes on other

platforms but I don't think it wants to lose its own entity because,

ultimately, ownership of the household is going to be important and I

think it realises that. Both Carlton and Granada are big enough to

weather this storm. In five years' time, the whole environment will look

very different. Strategically they just can't give up the right to own

the box in the home."



So the truth here is that ITV Digital's managers are actually brave

visionaries?



Well, perhaps. And the most worrying thing, from their point of view, is

that advertisers don't necessarily see it that way.



Bob Wootton, the director of media and advertising affairs at ISBA,

states: "Our position on this is absolutely clear. Firstly, we believe

that major broadcasters such as ITV should be platform neutral. (ITV1

should be carried on Sky Digital). As for ITV Digital our first concern

is about ITV1 - that's always the way we look at it. ITV has obviously

been indicating that its revenues might be under threat and that it's

possible it might have to look at ways of curbing expenditure. We will

always remind it that it has two main areas of expenditure - ITV

programming and the digital platform. Our view is that if push comes to

shove and there is a debate about what its priorities are, it should

concentrate all of its resources into its core offering. Which is ITV

programming. It's that simple. It should be very clear about that."