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."
