Carlton and Granada are trying to slash costs at their pay-TV joint venture, ITV Digital.
Carlton and Granada’s UK digital pay-TV platform ITV Digital is attempting to renegotiate its content deals, including a GBP315 million contract to televise Nationwide Football League games.
ITV Digital aimed to break into the subscriber TV market by offering digital TV through a conventional aerial. However, the service has so far spent GBP800 million to attract 1.26 million households – just 12% of UK digital subscribers. It needs 1.7 million to break even, but still suffers from high churn – 25% of subscribers cancelled in 2001, compared with just 12% at BSkyB.
Bad reception has deterred some subscribers, while technical problems with set-top boxes have led others to disconnect. Advertising revenue has slumped, both due to the downturn and because the audience is fragmented across dozens of niche channels. And many viewers feel that BSkyB and cable companies provide a better choice of content.
So the restructuring comes as no surprise. ITV Digital wants to cut payments to content providers like BSkyB and Flextech for sports and movies. They might indeed be willing to modify existing contracts, keeping the operator afloat and thus maintaining a revenue stream.
However, the Football League has said it will force Carlton and Granada to honor its deal.
The clubs need the money – and there are fears in the sports world that if an organization negotiates a cheaper deal with one broadcaster, this could catalyze a wave of similar renegotiations.
So there is a sporting chance Carlton and Granada will have to close down ITV Digital – which would hit the government’s ambitions of switching off analog television by the year 2010. But at the same time, there is reason for hope.
Next month Pace will launch a new budget-priced set top box, capable of delivering free-to-air channels alongside a smart card pay-TV service. ITV Digital could take advantage of this, offering limited pay-TV programming for more technophobic, price-sensitive viewers – and significantly lowering its cost of acquiring subscribers.
