Outlook: The end of the line for ITV Digital's futile war

Wonder of Woolies
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The Independent Online

Yesterday was a good day for the media world's biggest "shark", Rupert Murdoch. ITV Digital went into administration, NTL admitted that it was about to run out of money after announcing £8bn of write-offs, and Leo Kirch, the German media baron, sunk finally and fatally below the waves. A carve up of Kirch assets between Silvio Berlusconi and Mr Murdoch now looks inevitable. If Mr Kirch's shark was already supremely well positioned to gobble up all before him at the beginning of the day, he was doubly so by the end of it.

In Britain he has emerged as utterly dominant with 40 per cent of the national newspaper market and a now unassailable grip on all aspects of pay TV. ITV is clinging to the hope that eventually its digital terrestrial pay-TV platform will emerge from administration a strengthened and better enterprise, but that what's happening is tantamount to unconditional surrender to Sky is not in doubt.

The demise of ITV Digital is one of the most predictable corporate disaster stories of the modern age. At the last count, it had cost ITV's two dominant players, Carlton and Granada, £850m. Outright closure would take that up to a round £1bn. Charles Allan, chairman of Granada, and his counterpart at Carlton, Michael Green, have got plenty of excuses for this calamitous loss of shareholders' money, and some of them are good ones too.

ITV's digital business plan went off the rails at the very beginning when the Independent Television Commission, egged on by Brussels, refused to allow Sky a stake in the digital terrestrial platform. What was then in contemplation was a mid-market pay TV proposition that would complement rather than compete head on with Sky, as well as provide an alternative platform for distribution of Sky TV content. But this was regarded as handing the keys to Britain's digital TV future to Sky on a plate, and was thought of as wholly unacceptable.

Angry, bitter and offended, BSkyB determined that if you cannot join them, then the best policy is to beat them. Sky announced that it would give away its dishes and set top boxes in the digital landgrab race, an eventuality that wasn't thought remotely possible in ITV Digital's original business plan. Perhaps as bad, Sky began charging more for its content than ITV could sell it for to its subscribers. The Office of Fair Trading has only very recently judged this to be an abuse, but it has yet to do anything about it.

When ITV did eventually manage to buy a few sports rights from underneath Sky's nose, notably the Nationwide Football League, Sky refused to pay the going rate for the ITV content, further turning the screw on the struggling pay TV upstart. The straw that finally broke the camel's back was the extreme downturn in the advertising market, which has undermined Carlton and Granada's ability to keep funding the company.

BSkyB set out to defend its pay TV monopoly by fair means and foul. It has bullied and cajoled its way to success, eventually crushing ITV Digital beneath its big toe. It is hard not to feel a degree of sympathy for the pretenders. They were outgunned from the start and nobody lifted a finger to help them. At the same time, however there was a large element of la folie des grandeurs in the whole endeavour, and for that ITV's bosses must take the blame. Outbidding Sky for the Football League, the deal that has brought the crisis at ITV Digital to a head, was hubris on a grand scale. It was also a high risk last throw of the dice. Heads have rolled for far less costly misjudgements than this.

There's a touch of déjà vu in the destruction of ITV Digital. The whole thing is eerily reminiscent of the collapse of British Satellite Broadcasting, which after a couple of years of mounting losses, was eventually folded into Sky. Whenever ITV ventures out from the safety of its Government endowed licence to print money, it fails and in the process loses its shirt. It doesn't seem to have the entrepreneurial drive or talent to succeed in fiercely competitive markets. This time around, Mr Murdoch doesn't even need to offer a friendly takeover. There's little left which is worth acquiring.

As it is, ITV is hoping that it will end up with the mid-market pay TV proposition it originally planned with its old ally turned enemy, Sky TV, but with a viable, free to air, digital proposition for ITV and the BBC tacked onto the side. To get there it needs to show it is serious about cutting operational and content costs to manageable levels - hence the administration. This was always going to be a difficult to achieve as long as ITV Digital staggered on its previous incarnation, like an open wound on ITV's side. The Football League was only the most visible of the content providers that were determined to hold ITV Digital to the letter of contracts signed in more profligate times.

In a sense, then, the administration is just a device for getting ITV Digital more swiftly and honourably to where its masters want to take it. If this were open season, Sky would now press home its advantage, but it is nervous about being seen to be the last nail in ITV Digital's coffin. Much better to let ITV Digital live on as a kind of "Sky Lite" product, a parasite on the pig's belly, than further antagonise intrusive competition regulators by killing it off entirely.

It is possible, then, that something worthwhile will emerge from the ashes, but the war against Sky has proved both costly and futile. Management incompetence and hubris, misguided regulation, the Sky offensive - it is easy to see why ITV Digital failed. But in the end it is only the winner that counts, and that's Mr Murdoch.

Wonder of Woolies

What must a £20m mountain of unwanted CDs and videos look like? Given that it equates to around two million items, you might have thought it would be easy to spot. But no, Woolworths has only just noticed it and brought it to our attention. The CD mountain has apparently been there for the past three years, hidden, presumably, behind a cloud of management incompetence, or just conveniently ignored to make the figures look more flattering. Heaven knows what tat must have been there. The Osmonds Greatest Hits, possibly, or the Venga Boys' I'm Going to Ibiza, maybe.

The CD mountain was just one of a number of exceptional charges detailed by Woolies yesterday in a list that was almost as long as that of its former parent company, Kingfisher. It might have laid buried for ever but for the demerger. Within a group the size of Kingfisher it was possible to lose such problems in the numbers.

In the end, then this episode tells us more about Sir Geoff Mulchay's Kingfisher than it does about Gerald Corbett's Woolworths. For if this has been going on at Woolies what was going on at B & Q, Comet and the rest of Sir Geoff's retail creation. Francis Mackay, the new chairman at Kingfisher, should demand a root and branch review of the group's stock management policies.

As for Woolworths, yesterday's results were poor by any measure but the City seems to be looking through them to the prospect of recovery. The new chief executive, Trevor Bish-Jones, is saying all the right things in talking about the need for better systems and retail execution. But he would be wise to remember that this is a business with a habit of finding new banana skins to slip on. The shares may have run a bit ahead of themselves.

j.warner@independent.co.uk

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