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Business Comment

David Prosser: Another opportunity to set some limits for the BBC

The BBC's licence payers are again contributing to the cost of building a commercial servicethat threatens the viability of rivals

The row over Project Canvas, the internet-meets-television venture that the BBC, ITV and other partners are busy developing, is hard work. Virgin Media and Sky both object to the project on competition grounds, but unless you are immersed in this world, the debate about open versus closed standards, for example, is difficult to judge.

What is clear, however, is that broadcasting regulation and competition law are ill-equipped to deal with the pace at which technology is evolving. At the root of this dispute is the question of what involvement and influence the BBC ought to be allowed in projects that may soon transform the landscape of the broadcasting business.

Life used to be so simple. Licence-fee payers funded the radio and television programmes the BBC made while commercial competitors raised their money from advertising. Public and private sector broadcasters may have competed but they also coexisted perfectly happily.

The internet has transformed that relationship. The very existence of the BBC gives Britain's media industry a dynamic like nowhere else in the world – and the greater the convergence of internet and traditional media, the more difficult this has become.

Newspaper groups, for example, will have a great deal of sympathy for the concerns of Virgin and Sky. Many are now exploring ways in which they can charge for the content they put online but in Britain, where the BBC offers a comprehensive, free news service, the conventional wisdom at least is that this business model will be very challenging.

In the case of Project Canvas, we appear to have a situation in which the BBC's licence payers are again unwittingly contributing to the cost of building a commercial service that threatens the viability of alternative developments from potential rivals.

It is difficult to see that this is an acceptable use of licence payers' money, though the BBC Trust seems not to think this is a problem, never mind the debate about anti-competitiveness (though given the involvement of both BBC and ITV, as well as the two biggest broadband providers, that argument has legs too).

Still, will Ofcom and its fellow regulators be able to get to grips with the Canvas argument? Not on previous experiences.

ITV must put its baggage behind it

ITV, meanwhile, faces problems of its own – some of which we will hear prospective answers to today as the new management team, chairman Archie Norman and chief executive Adam Crozier, present their vision of how to take the business forward.

The gossip in recent days has been that this vision will include a return to the pay television marketplace. That's brave, given the painful experience of ITV Digital a few years back – it lost the best part of £1bn – but necessary.

In truth, it would be much easier for Messrs Norman and Crozier to do almost nothing with ITV. As the UK recovers from recession, the company's advertising revenues will pick up automatically, and the duo could spend a happy couple of years crowing about having turned the broadcaster around overnight.

That strategy, however, would leave ITV's fortunes inextricably linked to the business cycle and thus beyond its control. In any case, ITV has long accepted that even in happier economic times, its share of the advertising market will continue to diminish in a multi-channel environment.

The challenge, then, is to diversify the revenue stream, both to protect earnings and to smooth out volatility. Pay TV is the only option for achieving those goals.

That doesn't mean a return to the days of ITV Digital – its hopes of taking on Sky now look, in retrospect, ludicrous, though Johnny Vegas's monkey was a stroke of marketing genius. But ITV should be able to bundle together existing or, more likely, new channels – HD is touted as a possibility – to sell within the subscription options available on digital television. Developments such as Canvas will help, but even without them, many European broadcasters have developed successfully in this way.

Revenues in the short term are likely to be modest, but better some limited diversification than none at all.

Time to end the British Airways dispute

Unite's negotiators – and the trade union's British Airways members – might be wise to watch an episode of Deal or No Deal as they ponder their next move. The premise of the show, that the reward on offer diminishes if the contestant holds out for too long and over-reaches, is all too relevant in their interminable dispute with the airline.

This is not to take sides on the issues at the heart of the argument, but yesterday's talks between management and the unions notwithstanding, BA very clearly now has the upper hand in the row and future offers are likely to be less generous.

In fact, the airline has just enjoyed one of its best weeks for quite some time. The latest trading figures may have revealed another chunky loss, but as much of that was down to the one-off hit from the Icelandic volcano fiasco as the strike. Crucially, BA has for the first time since the recession been able to report a return of business-class passengers on its long-haul routes. It will be profitable by the end of the year.

To add to the feelgood factor, the Pension Regulator has just given its approval for BA's plans to close its pension fund deficit, clearing another obstacle to the Iberia deal.

As for the union, each wave of industrial action has been less successful. BA insists that in any future strike, it would get all its long-haul flights away.

Moreover, the last deal put on the table by the airline did offer some real concessions – decent pay rises for a company suffering record losses and even movement on those all-important travel perks. It is time to settle.