ITV should stop whingeing and start competing

Granada; Tesco's triumph; Corbett's woes
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The Independent Online

Charles Allen, chairman of Granada, is not known for histrionics, but that was the tone of his letter to the Prime Minister, complaining that if he is not allowed to consolidate with Carlton Communications into a single ITV company, then the future of ONdigital might be at stake and Granada could fall prey to a foreign takeover.

If there is one sure way to shoot yourself in the foot, this is it. What on earth does Mr Allen think he's playing at so to admit to his own vulnerability and weakness? If this was an episode in ITV's disastrous "reality TV" series, Survivor, he'd be straight off the set.

Yesterday Mr Allen had gone to ground and was refusing to elaborate. Small wonder. The letter is one of the most pathetic and brazen pieces of special pleading to have come to light in many a long year, and full marks to the government official who leaked it.

Unsurprisingly, the other party in Granada's proposed consolidation, Carlton, had nothing but derision for Mr Allen's whingeing half threats and innuendos. By writing this letter, Mr Allen has succeeded in only one thing – highlighting Granada's own dire position, caught as it is between the pincer movement of declining advertising revenues and the high costs of ONdigital.

Furthermore, Mr Allen's letter is quite out of sync with his public pronouncements to the City and the press. It is as if the veil has finally been lifted to reveal what has in any case been long suspected. Publicly Mr Allen is upbeat about ONdigital and determined to make it work. On advertising he admits that the state of the market is bad, but insists that ITV is holding its own against fierce competition from multi-channel TV and other media. Well, now we know. Without a further defensive merger, both ONdigital and ITV are, by Mr Allen's own admission, doomed.

Even allowing for exaggeration, this is a quite extraordinary thing to have put in writing. What's more, the idea of a single ITV company is for the time being a wholly unrealistic one. The Government is sympathetic, but its stance is not so dissimilar to that on the euro – yes, but not yet. Eventually the Government proposes to introduce legislation which will allow all ITV licences to be held by just one company, but the fact that this legislation was not included in the Queen's speech isn't going to make any difference one way or the other.

As things stand, Granada would be banned from merging with Carlton not because of the law, but because combined the two companies would still have more than 50 per cent of all TV advertising revenue in Britain. Mr Allen may not think of that as a monopoly, but most advertisers would.

True, ITV seems to be doing its utmost to lose this position. It so infuriated advertisers last year with its extortionate charges that many have taken their business elsewhere. But even at the present rapid rate of attrition, it's going to be a while before the combined market share of Granada and Carlton is reduced to levels that could reasonably allow a single sales house for ITV.

Mr Allen is an accomplished and determined businessman, but he seems to assume ITV shouldn't have to live by normal competition rules, and that it has a God-given right to exist. In an age of multi-channel TV, it does not, and unless Mr Allen starts fighting as hard for viewers and advertisers as he does for his investors, Granada will deservedly end up like the Survivor series itself – cut short.

Tesco's triumph

Another triumph for Tesco, and this time we're not being ironic. An American retailer signing up a UK rival for assistance is rare enough. That it should happen in the e-commerce arena, where the US was supposed to be years ahead of Blighty, makes it all the sweeter. Indeed the ironies do not end there. Tesco's deal to run the online grocery service of Safeway Inc will start in the San Francisco Bay Area, the cradle of the internet revolution. This too was the base from which WebVan was supposed to revolutionise American grocery retailing, before it all turned out to be more hype than substance.

For Tesco the deal is significant on two levels. It's a first toe hold in the United Sates and it is also a final vindication of Tesco's e-commerce business model, which was widely regarded as quaintly low-tech when first launched five years ago.

Tesco's approach is to send shop assistants hurtling round its stores with trollies hand "picking" the e-commerce orders from the shelves several at a time. It then puts them in a van and delivers them. Meanwhile, the likes of Sainsbury's, Asda and WebVan were spending a king's ransom on flash warehouses that were supposed to be more efficient in the long run but turned out to be costly, slow and in the short run, hopelessly inefficient. Most are now copying Tesco's approach instead.

The inability of Safeway to come up with something similar on its own is mystifying, since Tesco is offering little beyond some IT systems and a bit of know-how. But it is a coup, none the less, and one Terry Leahy, Tesco's chief executive, believes he can repeat in other markets.

The worry for investors is that Tesco might view yesterday's Safeway deal as a prelude to a more broadly based assault on the US, something the company made no attempt to rule out yesterday. It hardly needs pointing out that the US has been a graveyard for countless British retailers. The US supermarket sector, in particular, is a highly competitive, low-margin business where easy planning permission, low real estate prices and even lower transport costs make barriers to entry virtually non existent.

Tesco's international strategy to date has been to expand in emerging markets in central Europe and the Far East where hypermarket competition is relatively limited and living standards are rising strongly. Tesco should limit itself to this eminently sensible approach.

Corbett's woes

Gerald Corbett should plainly have "lain doggo" for rather longer than he did. After leaving Railtrack, that's what he planned, but Mr Corbett is nothing if not a fighter and after a few months, he was back as chief executive of Woolies.

Few chief executives get publicly vilified as badly as Mr Corbett, and it's hard not to feel a touch of sympathy for the poor man as he gets drummed out of yet another job. The £1.4m pay-off he got from Railtrack certainly featherbeds the experience, but Mr Corbett is only 49 and were it not for his entanglement with the railways, he could reasonably have looked forward to at least another couple of "big" jobs before retirement.

As it is, the likely decision to replace him at Woolies reflects rather worse on Sir Geoff Mulcahy, chief executive of the Woolies holding company, Kingfisher, than it does on Mr Corbett. For Sir Geoff, this is an admission that he got the appointment wrong, that having selected Mr Corbett to head the demerger of Woolies from Kingfisher, he's now been persuaded by the City that Mr Corbett is not, after all, the right man for the job.

After the Cullen report, which accused Railtrack under Mr Corbett of "lamentable failure and institutional paralysis", that's perhaps not so surprising, but it's another cock-up for Sir Geoff in a growing line of them.

j.warner@independent.co.uk

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