Shut ONdigital down say investors

LONDON - Granada shareholders are lobbying the troubled media group to ditch its loss-making digital terrestrial pay-per view service ONdigital, which it owns with ITV partner Carlton Communications.

At least four of Granada's 20 main investors think the service has lost the battle to win digital subscribers to rivals Sky, the satellite service, and cable operators NTL and Telewest, according to a report in the Financial Times.

Granada is facing mounting pressure from shareholders because ONdigital has eaten up £800m of Granada and Carlton's money since it was launched in 1998. A further £300m has been earmarked for the service.

On top of this, ITV has been badly hit by the global advertising slump, which has seen Granada and Carlton's share prices tumble.

ONdigital has always been widely viewed as a poor second to the News Corporation-backed BSkyB. A fund manager at one of Granada's largest shareholders said, "Sky was always going to win the pay-TV war. It was just a question of when."

ONdigital has 1m subscribers, compared with Sky's 5m. The digital service, which can be received through TV aerials, is slated to break even in 2003 when it nets 1.7m subscribers. It is also set to be rebranded as ITV Digital soon.

The news follows a leaked letter to prime minister Tony Blair from Granada chairman Charles Allen. Allen believes that the government's failure to change media ownership rules, which would allow the consolidation of ITV, in the next parliamentary term could spark a shareholder revolt against ONdigital.

Allen said that delaying an overhaul of media ownership legislation could see shareholders abandoning Granada, leaving it vulnerable to a foreign takeover and possible closure.

He went on to highlight that there would be substantial job losses should ONdigital close.

Meanwhile, SMG chairman Don Cruikshank has thrown his weight behind Allen's comments and condemned the government for further delaying the expansion of UK media companies because of antiquated cross-media ownership rules.

Speaking at a cross-media ownership seminar, Cruikshank compounded Allen's fears that Granada could be taken over by a larger European rival.

"There is a distinct chance that by the end of this parliament there will be no UK-owned, UK-governed significant media group in this country -- except, of course, for the BBC," he said.

He agreed with Allen's view that further consolidation in ITV was vital for its future survival.

Cruikshank added that existing cross-media ownership rules are blocking SMG's aims to add commercial radio to its current offering of TV and newspapers. This, he said, is preventing the creation of larger companies which could compete on a global scale.

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