Jeremy Warner's Outlook: The rich get richer in Britain's economic renaissance but the poor get poorer

ITV makes friends, but is it enough?; Battle for BPB enters its final stages
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The Independent Online

Mean earnings in Poplar and Canning Town are an astonishing £101,322 a year. The reason is obvious if you happen to work here. In the shape of Canary Wharf, this Labour constituency has what is very probably the highest concentration of investment bankers anywhere in the world. Few of them actually live here, however. Wander little more than a stone's throw away into the Isle of Dogs, and you will also encounter some of the poorest elements of society anywhere in Britain.

The division is instructive, for the main finding of the survey confirms the age-old truism that the rich are getting richer and the poor are getting poorer. Across Britain as a whole, median earnings are rising almost twice as fast in the top decile of workers as in the bottom. Indeed, the gap has been widening steadily in virtually every year since 1980, the only exceptions being in two years when the Government significantly increased the minimum wage.

Living standards have been improving across nearly all income groups, but the most dramatic gains are at the top. Again, Canary Wharf is instructive in explaining why. The real money is today earned in fast-growing service industry jobs, where the terms of trade have turned dramatically in Britain's favour.

All of a sudden, the services of top traders, IT specialists, corporate lawyers, bankers and entertainers are in demand the world over, and their earnings have been rising much more strongly than growth in the economy as a whole. Yet those in low-skill jobs or manufacturing find themselves constantly undercut by immigrant labour, Chinese imports or the call centres of Bangalore.

Britain's economic success has been built on its powerful position in these fast-growing service sectors. That's been a huge boon to a growing minority, but those in the older industries have found themselves left behind, or excluded altogether from the economic renaissance going on all around them.

ITV makes friends, but is it enough?

Why doesn't ITV just stick to its knitting, many in the City have been asking in irritation on learning that the company is close to buying Friends Reunited. The last time ITV attempted to diversify away from its core franchise in commercial television - with the doomed ONdigital pay-TV platform - it ended up losing its shirt. ITV's chief executive, Charles Allen, was lucky to survive with his job.

Since then Mr Allen has partially redeemed himself by persuading regulators first to agree to the creation of a single ITV, then a substantial cut in ITV franchise fees, and finally a big reduction in the company's public service broadcasting obligations.

But he's yet to show that his talents range much beyond clever management of regulators. To survive and prosper, ITV needs to find new sources of income to compensate for the loss of audience and advertising in its core ITV 1 franchise.

Those who see this decline as indicative of poor investment and creativity have missed the point. In truth, it doesn't matter how much money or talent Mr Allen throws at ITV 1, the advent of multichannel, digital TV means that his audience share is bound to fall anyway. Today there is a legion of alternative channels to watch. ITV has responded with its own array of new digital channels, but in itself this is not enough.

There's also the internet competing for eyeballs, and with growing broadband penetration, it is becoming ever more successful at winning them. Any media company without an internet strategy will be dead in the medium to long term, or at least a shrunken shadow of its former self.

The mooted acquisition of Friends Reunited should be viewed in this context. Yet to some, it looks like an act of desperation. ITV was slow to enter pay TV, and when belatedly it finally took a stab at this fast-growing market, it screwed up big time. Isn't history about to repeat itself with new media and the internet? Rival bidders, such as Rupert Murdoch and the Daily Mail, seem to have dropped out of the running, leading to the suspicion that Mr Allen is about to overpay in an effort to secure his place in cyberspace.

Actually, it seems that the company's founders and controlling shareholders would rather sell their baby to the cuddly Mr Allen than to News International or Associated Newspapers. Sometimes price is not the only issue.

Be that as it may, Mr Allen would like us to see Friends Reunited not as an end in itself, but as part of a wider and carefully thought out strategy for tapping into direct sources of consumer revenue. Once "a licence to print money", the old business model in which ITV's only task was to deliver mass TV audiences to advertisers is fast breaking down. Instead, ITV must seek alternative ways of monetarising its relationship with consumers, from selling them content, gaming, quizzes and product to providing advertisers with more precisely targeted ways of reaching potential buyers. A presence in broadband is essential to this process.

Whether Friends Reunited is the best way of buying it, or whether it is not already too late for ITV, remains to be seen. Still, at just £120m, with the potential to rise to £170m depending on performance, the price doesn't look off the scale. In the internet hype of the late 1990s, a site like this might have gone for billions.

More realistic prices are now being paid. Combined with ITV's existing website, the company would be the sixth most visited site in Britain after the big search engines, eBay, Amazon and the BBC. The incredibly rich database built by Friends Reunited provides the sort of access and calibrated demographics that marketing men kill for. Mr Allen is bound to encounter scepticism, but in strategic terms, this is exactly the right acquisition. Whether he is already too old and too late to be entering the new media age or what sort of fist he makes out of the business after he's bought it is another matter.

Battle for BPB enters its final stages

The battle for control of BPB, the world's largest manufacturer of plasterboard, has entered its final phase. Peter Cousins, BPB's chief executive, has fired the last of his cannon. All he can do now is await the Saint-Gobain response and hope that it's insufficient to blow a hole in his defences.

The present offer, of just 720p a share, would plainly fail if it were made final. It's not enough, and the majority of BPB shareholders would almost certainly be prepared to take the short-term hit to the share price that would occur if they turned it down. The question Saint-Gobain's chairman, Jean-Louis Beffa, must ponder is what would be sufficient and is he prepared to pay it. He's got a week to decide.

If the same multiple were applied to BPB as the takeout price for Aggregate Industries last year, he'd have to pay 832p a share. Mr Cousins would say that in fact he should be paying even more, to recognise BPB's superior growth prospects. But that's not going to happen, and anything north of £8 a share would all but guarantee success. Anything as mean as 750p a share, and the outcome would be much less predicable.

Mr Cousins must be right to believe he could survive such a response. He's promised profits of at least £350m for this year. He's committed himself three years into the future on his dividends. He's pledged a £600m buy-back. And he's set himself the target of achieving double-digit earnings growth for each of the next five years. Surely in this, the 200th anniversary year of Trafalgar, it's enough to see his French assailants off. Better watch out for the sniper bullet though.