Carlton profits fall as digital costs bite

CARLTON Communications, the ITV broadcaster and owner of the Technicolor film and video business, provided further evidence yesterday of the cost of playing a lead role in Britain's nascent digital television broadcast market.

A 50 per cent partner in ONdigital with fellow ITV broadcaster Granada, Carlton reported a near one-third fall in six months to March pretax profit to pounds 110.2m. That encapsulated a loss of pounds 49.6m for investment in digital television.

But spending on digital media, spread across the group's broadcasting, film and video processing, and equipment manufacturing operations, is planned to surpass pounds 150m this year. The biggest recipient will be ONdigital, which will gobble up additional investment of pounds 200m between now and September 2000. The bulk of that comes from ONdigital's plan to begin giving away digital set-top boxes from tomorrow. It matches a rival free offer from BSkyB that comes into effect on Saturday.

Steven Cain, 34, the new chief executive, unveiled a reorganisation that will consolidate TV, production, distribution and Internet businesses into a unit to be called Carlton Media Group. He also introduced a plan to push up performance at the Media and the Technicolor businesses - the source of over 90 per cent of group earnings.

Key to the three-year plan, Mr Cain said, is building Carlton's brand across its entertainment operations, boosting its 17 per cent share of ITV commissioned programming and expanding the UK cinema advertising business to the US. "What we're trying to do is become more like brand managers," Mr Cain said. Carlton's share price closed down 21.5p, or 3.8 per cent, at 531 pence after an early advance as analysts said the plan lacked hard detail. They also noted that chairman Michael Green remains firmly in charge, thus making any major change in strategy unlikely. "It's the same organ grinder - you just have a different monkey, quite frankly," observed one analyst.

Healthy advertising revenue gains in the Central, West Country and London ITV franchises, buoyed by audiences of 19 million viewers for the hit quiz show Who Wants to be a Millionaire?, boosted operating profit by 15 per cent to pounds 87.8m. Video duplication operating profit rose 32 per cent to pounds 52.9m, film processing dipped fractionally to pounds 30.6m, while equipment makers Quantel and SSL fell by almost two-thirds to pounds 5.1m.

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