'I'm free,' says ITV, but then again you might have to pay

After sitting on the sidelines during the digital revolution, Freesat shows, at last, that ITV does have some spunk

No one invited an ITV executive on to the panel. Why would they? Since the collapse in 2002 of its subscription service, ITV Digital, the company has had to piggy- back on other broadcasters' platforms, be they Freeview, Sky or cable firms. But no more. On Wednesday, it announced it was launching "Freesat", a free satellite service, with the BBC.

Cassandras have been warning that ITV's future is bleak. They say its share of the advertising cake, its main income, will shrivel as multi-channel television becomes more popular and new devices like Sky Plus allow viewers to skip adverts. But will Freesat silence ITV's doomsayers?

The details are still being worked out. So far, only ITV and BBC have committed channels to Freesat, which will have more capacity than Freeview. Sky already offers 120 channels on its own free satellite service (excluding premium content like football and movies) for a one-off installation fee of £150.

ITV and the BBC say that Freesat, which will be launched some time next year, is aimed at the one quarter of the population who cannot receive a signal for the digital Freeview service.

The BBC is particularly keen to stress that Freesat is not a competitor to Sky. But for ITV, this is clearly a strong motivation for getting involved. People watch less ITV in Sky homes than in Freeview or analogue ones, and the company hopes that by offering a limited satellite service, it will keep as many people from the clutches of Sky as possible and protect its ratings. Laurie Patten, from media strategy consultancy Spectrum, says: "The launch of a BBC/ITV-backed Freesat is ratcheting up the battle between free and pay television."

Since the ITV Digital debacle, the company has sat on the sidelines as the digital revolution has swept the television industry. Under ITV's pre-merger incarnation, Carlton and Granada turned down the opportunity to join the Freeview consortium (made up of the BBC, BSkyB and the telecoms company Crown Castle) because it saw multi-channel television as a threat.

Ms Airey, the head of Sky Networks, finally admitted in Edinburgh last month that the only reason BSkyB joined the consortium was "so we could find out what you lot were up to". ITV had the chance to do the same but decided not to.

Part of the reason for ITV's change of approach is the success of its digital channels, ITV2 and ITV3 (it is launching ITV4 in November). Reporting results last week, the company said advertising for ITV1 had fallen by 3.5 per cent in the first half of the year. But this was more than made up for by growth in revenues from outside the flagship channel; these were up by over a third.

But the launch also demonstrates at long last that ITV does have some spunk. Last spring, at an open day for the media and City analysts, executives were strangely unresponsive to new threats to ITV, such as Sky Plus. Research was inconclusive, they said, on whether viewers would use these recorders to skip adverts.

Now, on top of the Freesat announcement, ITV has said it is launching a new mobile phone service. This will allow viewers to watch Coronation Street and other popular programmes on the move. No one knows how big the market is, but at least it shows that ITV's chief executive, Charles Allen, is prepared to try something new - rather than adopt a wait-and-see attitude, as its executives did with Freeview.

All in all, it was a good week for ITV: better-than-expected results and some long-awaited, and well-received, strategy announcements. But the broadcaster is still swimming against the tide. The gains from digital channels in the first half of this year had a one-off comparative boost from ITV3, which was launched in November and so was not included in the first half numbers last year. And while the performance of these channels has been good, their audience share has been hit by the likes of Channel 4's E4 going free-to-air on Freeview. Morgan Stanley analysts have downgraded their advertising forecasts for this year and next.

So where does ITV's future lie? Its acquisition in April of SDN, a multiplex supporting 10 channels on Freeview, is a big clue. These channels include pay television services, such as UKTV Gold's Top-UP TV, whose contracts come up for renewal at the end of the decade.

By then, most homes will be multi-channel and ITV's share of advertising will have shrunk still further. But it could decide to introduce its own subscription channels via SDN on Freeview and possibly Freesat, which would provide another more covert motivation for launching the service.

The Edinburgh debate about free versus pay television slightly misses the point. The future of television can be free and paid for. Sky, with its own freesat service, is already doing it.

It may be the only way to go for ITV and is a big reason behind its decision to back Freesat.

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