Channel 5 decision is the old school's last stand
Saturday 28 October 1995
Then, there is the rump of the old Thames TV production and broadcasting powerhouse, latterly reduced to production alone when it lost its licence to Carlton. Thames types were intimately involved in the preparation of the winning Channel 5 bid. They, too, are now back in the saddle. Finally, two current ITV licence holders have also been given the nod: MAI, fast emerging as a close ally of Pearson, controls Meridian and Anglia, the latter a production power in its own right.
And to whom did the ITC say no? Perennial bridesmaid Virgin, which seems to have a congenital inability to win government-run auctions (although to be fair, it did finally get a commercial radio licence). And UKTV: newcomers indeed, but surely not to the world of television, in which they have excelled in Canada, South America and Australia.
The ITC was sending a signal here. This was a mini-revolt against the direction that commercial TV is taking, in the fragmented world of satellite, cable and, soon, digital. It was an old-fashioned vote for "quality" public service broadcasting, and the quaint idea that regulators can force broadcasters to "educate" even as they "entertain".
There is no doubt that there were problems with the losing bids, as we have pointed out before. UKTV was obliged to create an odd ownership and financing structure because CanWest, the main partner, could not line up a serious British broadcaster (the best it could do was bring tiny SelecTV, of Birds of a Feather fame, on board). Virgin, for its part, was vulnerable on its VCR retuning plan, which relied on toll-free numbers rather than blanket home visits.
But the ITC did not reject the bids on these bases. It used its discretionary powers to judge programme quality - clearly a subjective matter, whatever all the rules and regulations say. By going with Pearson/MAI, it knows precisely what it will get: roughly, more of the same. It also helps bolster the old-fashioned concept of public service broadcasting against the onslaught of Rupert Murdoch and his like, the more so because of Pearson's now strong connections with the BBC.
Can another standard, mainstream television station make money? The answer has got to be yes. Channel 5 will probably break even within three years, provided it can build audience share to the 15-plus per cent mark. Advertisers would be happy to see another channel capable of delivering mass audiences. With men like Greg Dyke on board, mass audiences are definitely within reach.
The real winner, then, is Mr Dyke, and that will reflect well on his employers, Pearson. The addition of a share in Channel 5 to Pearson's already large stable of television assets confirms the direction the company has wanted to take. It will be one of the UK's most important broadcasters: and the weight of television will be even greater in Pearson's portfolio of media and entertainment. With this win, and perhaps with the addition of SelecTV (for which Pearson is bidding) and the US distribution company ACI (an offer for which may be just a few weeks away), critical mass has finally been reached.
AT&T is up to something
Labour is certain to call a halt to the present takeover free-for-all if it gets into power. With every prospect of that happening, investment bankers have a lot to pack in over the next year. A very substantial number of deals are in the pipeline. The only question is: just how ambitious dare they get? There must be a limit even to this Government's tolerance, though it has yet to be tested. Presumably, British Telecom would be out of the question, but Cable & Wireless - a loose federation of individually attractive telecommunications assets with little if any strategy to unite them - might just about be possible.
That's the way investment bankers are thinking, anyway. In their search for a suitable bidder, few have failed to knock at the door of AT&T, the US telecommunications giant. AT&T has been there once before, having spent many months looking at the possibility of taking a stake in Mercury as a gateway to a wider international allegiance. Lord Young, C & W's chairman, once described the experience as like being hugged by a bear and the Americans were eventually rejected.
Rumour has it they are now back. Certainly AT&T is up to something. You only have to look at the bizarrely lavish advertising campaign AT&T is running on British TV to realise there is action afoot.
US still has a road-block ahead
Once again the US economy has surprised the legions of economists and dealers who watch its every twist and turn. The 4 per cent annual rate of growth chalked up in the third quarter was almost double what the markets had predicted. One up for the consumers and investors who actually drive the economy; one down for the analysts who make a living from predicting and observing it.
These are of course provisional figures, subject to all the usual health warnings about subsequent revisions. But assuming that the estimate holds true, they point to a continuing virtuous circle of low inflation and sustainable growth. It sounds too good to be true. All that now stands in the way of a further easing of monetary policy, the US Fed has indicated, is a credible budget deal.
That, however, is a formidable roadblock. The Republican-controlled Congress and President Clinton are on collision course over key details of the budget. Healthcare reform and tax reductions are still not agreed. Budget brinkmanship may continue to the last minute with Congress refusing to extend the debt ceiling and talk of temporary Treasury default. Even so, the consensus in the markets is that this is par for the course, with the administration and Congress deploying well-honed scare tactics to browbeat the other into submission.
The budget and debt ceiling were linked in both 1985 and 1990. A more compelling reason for optimism about a cut in interest rates is that the strong third-quarter figures may be followed by weaker growth for the rest of the year.
If that is the case, the chances for a reduction in rates look set fair. But it will only be because the virtuous circle of low inflation and sustainable growth is not quite so virtuous as yesterday's figures suggested.
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