Select Committee on Culture, Media and Sport Minutes of Evidence

Annex 1


6 June 1998, The Daily Telegraph

  An ITV spokesman said: "Digital terrestrial TV boxes will be available to everyone and it's a shame that the BBC has felt the need to hedge its bets and go on digital satellite as well, instead of putting the full force of their services behind digital terrestrial TV."

30 August 1999, The Guardian

  Steve Morrison, Granada Media chief executive, said the issue of whether to allow the main ITV channel to be on digital satellite was a "commercial and strategic decision".

22 September 1999, The Independent

  Stuart Prebble was quoted as saying "I think it's not fair that the viewer who buys multi-channel television in order to be able to view the best football can't receive it. I would like to move towards the situation where the most attractive content is available on all platforms".

6 July 1998, The Guardian


Mathew Horsman

  It is a truism that whenever bean counters and strategists find themselves at odds, it is the bean counters who win the day. That should be borne in mind by the ITV companies, most notably Carlton and Granada, who have so far resisted the idea of distributing their channels via digital satellite (or DSAT as it is known by the acronym-mad broadcasting industry). The reason? Both these companies are backing digital terrestrial TV (DTT), which the short-termists within the pay-TV business seem to think is in a head-to-head battle with BSkyB for digital customers.

  Why, they argue, should they put ITV and its planned sister channel, ITV2, on Rupert Murdoch's digital satellite platform? Why not keep these great services exclusively for digital terrestrial TV, the better to drive take-up of DTT in the UK, at the expense of DSAT? The `just say no to Sky' camp within ITV think they have a further reason to keep the channels off Murdoch's system. Why, they complain, should they spend at least £20 million or so a year on transponders and conditional access charges (needed to scramble and unscramble the digital signal) to the profit of Sky? For Granada and Carlton, it would be so much better to encourage consumers to buy a DTT box, which—of course—also allows viewers to tap into the pay- TV services offered alongside the free DTT channels. And guess who owns the company—British Digital Broadcasting—which will provide the pay-TV part of DTT? Why, Carlton and Granada.

  Alas, there is a flaw in the logic, and that's where the bean counters come in. The ITC is now in the process of calculating `fair' licence payments for those ITV licence holders that have elected to apply for early franchise renewal. High licence bidders will receive relief—collectively as much as £100 million in 1999. More to the point, when it comes to the `ITV on Sky' debate, the ITC will provide additional incentives in the new licence terms to hasten the transition to digital TV. The most important of these involves the tax on ITV advertising revenues (know as Percentage of Qualifying Revenues, or PQR). In the next licence term, only analogue homes will count toward the PQR calculation.

  Whew! So far, so good. Obviously the ITV companies will be happy to save money on tax, against which to balance their spending on the digital transition. But they will only benefit if the homes in question receive their ITV service in digital form. So unless ITV goes on digital satellite, all those DSAT homes will still count as analogue for the purposes of PQR. Put another way, every Sky DSAT home is a potential saving for ITV, but only if ITV is on the DSAT line-up.

  So what, Carlton and Granada might say. After all, they will be able to count DTT and digital cable homes. And the savings from DSAT distribution alone won't be that great when judged next to the strategic benefits of promoting DTT over Murdoch's system. But don't forget the bean counters. Let's play with some numbers. Assume that PQR, which in practice varies licence by licence, is on average 15 per cent in the digital future. ITV's qualifying revenue is about £75 per home. So if DSAT is available in three million homes by 2001 (that's what HCIB forecasts) ITV would bank net savings of £11 per DSAT home (that is, 15 per cent of £75). On my three million homes, that translates into £33 million. I don't count any incremental earnings from advertising on ITV2, as these may in fact cannibalise advertising revenues on ITV1. But even if there are no additional ad revenues at all (unlikely), ITV still stands to gain £33 million in saved PQR on three million DSAT homes.

  "Now let's work out how much it would cost ITV to go on to DSAT. The companies themselves argue that as they are a free-to-air broadcaster with public service obligations, they should not have to pay at all. But there is a problem, as the BBC, which has already agreed to go on DSAT, long ago understood. If a broadcaster merely leased transponder capacity and showed its service for free to anyone with a dish, then the signal would show all over northern Europe (the Astra satellite footprint is a big one). ITV shows programmes to which it has only UK and not continental European rights, so it risks being in breach of contract if it shows programmes elsewhere. The only way to stop this `spill over' is to scramble the signal and provide viewers with a `smart card' to decode the service. This is known as `conditional access', and it costs money.

  "Sky, quite rightly in my view, will not take on these costs. So let's add up the bill. Three transponders on Astra, enough for ITV's regional services and then some, would cost about £l2 million a year. Conditional access, at least to the level required by a free service (ie no need for billing), would cost a flat 20p-25p per subscriber per month. Sticking at my three million figure, and assuming the higher of these two rates, the annual bill would be in the region of £nine million.

  "So that's £21 million a year. Set that against the £33 million in savings on PQR, and I know the strategists will lose the debate. As digital rolls out, that sound you hear is of accountants sharpening pencils".

  Mathew Horsman is a media analyst at the City firm of Henderson Crosthwaite

  Mediaweek (25/06/01): Gerry Murphy, Chief Executive of Carlton stated ITV Digital would have more sport than any other platform because of its exclusive distribution of the ITVSport channel.

  Daily Mail (26/07/01): Rob Fyfe, Chief Operating Officer of ITV Digital, said that he had "been fighting long and hard" to keep ITV Sport exclusive to ITV Digital.

  Financial Times (16/01/02): "Some ITV executives, led by chief executive Stuart Prebble, are thought to be reluctant to share the content with BSkyB, as they see it as key to attracting new (digital terrestrial) subscribers." Also quoted an ITV executive stating: "There are some people at ITV Digital who have the mistaken belief that it is in the company's interest to see talks (with BSkyB) break down."

  The Daily Telegraph (16/01/02): "Champions League football will not be made available to Sky viewers after the ITV Sport channel pulled out of talks to join the broadcaster's digital platform."

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