Did you make money out of the digital landgrab race? No, not many people did. Instead, the investment landscape is littered with the corpses of those who lost their shirts and worse. ITV Digital is only the latest example in a long list of them, and although the £1bn squandered on the venture looks a big number, it pales into insignificance against some of the others.
AOL Time Warner is expected shortly to confirm a massive $55bn write off of the value attributed to the company at the height of the New Economy boom. Lesser examples of the same thing are all over the place, and after the excesses of the technology bubble, the number of companies that find themselves struggling under mountainous debt out of all proportion to the size of their businesses is legion.
It was as far back as 1996 that Alan Greenspan, chairman of the Federal Reserve, first referred to the "irrational exuberance" of the stock market. But after a brief hiccup, the stock market shrugged its shoulders and carried on going up. If there was madness in the air as far back as 1996, it was to get much, much worse.
At that stage, the digital revolution was in its infancy. MSDOS was still the dominant PC operating system, the world wide web was little more than a year old, and both analogue telephony and TV remained in widespread use. The expression "New Economy" hadn't even been coined, still less had its modern day equivalents - the internet economy, the knowledge based economy, and the others.
All the excitement of the digital age, with its mind boggling implications for the way business is conducted and products are sold, was yet to come, and so was the investment bubble that accompanied it. The dot.com boom was always only a minor part of it. Everyone knew that the dot.coms were a one off, crazy hype. If it had stopped there, the damage would have been limited. But then big, established business too began to get with the beat and lose its marbles.
The moment of truth for this column was at a lunch with a senior British Telecom executive when he began to speak, apparently in all seriousness, about the City's desire to see the dividend either cut or disappear entirely so as to allow more investment in the then boom businesses of mobile telephony and data transmission infrastructure. Whether the City actually wanted such a thing scarcely seemed to matter. The executive's perception of what was expected of him - never mind the profit, just spend the money - was certainly in tune with the spirit of the times.
During those mad, glorious years, business and the City seemed almost wholly to lose sight of the old fashioned virtues of profit, customers and customer service. A vast new landscape of unclaimed territory seemed to lie just beyond the horizon, and the spoils would go to those that could get there first.
No one was immune to the madness. Even BSkyB, whose final victory in the battle for digital TV in Britain was confirmed this week with ITV Digital's administration, had its moments. Open, the company's interactive on-line shopping mal, proved a spectacular waste of money, though parts of it are now turning a profit. Likewise, the acquisition of Sports Internet Group, bought at the height of the dot.com boom, was largely money down the drain. Deep pockets and an existing monopoly of pay TV ensured that when the war for digital TV subscribers began, it was better prepared than ITV to take the pain and claim the territory.
Perhaps appropriately, the New Economy partying continued for a full three months into the new century before the technology bubble finally burst and reality dawned. Yet pockets of madness persisted. One was ITV Digital, which as late as June 2000 paid £315m for rights to televise Football League games, even though the battle with Sky had already by that stage been largely lost. Another was the European auctions for 3G mobile telephone licences.
As it happens, this particular madness was as much the fault of the British Government as half crazed telecom executives. Gordon Brown, the Chancellor, thought he was being frightfully clever in applying "games theory" to the auction process, but the end result has been to benefit no one. The auction worked on the basis that proceeds could be most effectively maximised by limiting supply. Since the mobile incumbents knew they would be dead in the long term unless they secured some of the scarce resource on offer, they were obliged to take part and the whole process inevitably became one of beggar thy neighbour.
When this column wrote before the auction began that some wild voices in the City thought the bidding might go to £5bn, there were gasps of disbelief all round. In the end it yielded five times that amount and Mr Brown was hailed as a genius. In fact the process had conspired to make the industry horribly overpay, and these auctions became the straw that finally broke the camel's back.
The precipitous plunge of the New Economy into recession and the huge write-offs now being made on balance sheets up and down the land cannot be wholly blamed on the 3G auctions, but they were certainly a part of it. The short term fix of the Chancellor's £25bn is being paid for now in plunging corporate tax receipts, thousands of job losses in the technology, telecommunications and media industries, and an economy that ground to a halt in the final quarter of last year. As for the mobile phones industry, it's development has been set back years.
Exaggeration? Well perhaps just a little. The Chancellor had but a small walk on part in the great digital meltdown. Most of it came from the financial markets themselves, which wanted desperately to believe the business cycle was dead and a golden age of never ending growth and prosperity was beginning.
As it is, Western economies seem to have escaped the worst consequences of the great digital landgrab race with surprisingly little damage. Remarkably, there has been no recession, either in the US or in Britain, and although companies, bankers and investors have been deeply scarred by the experience, for the broad mass of the population, things seem to be basically OK. High levels of household debt may be something to worry about in the long term. The damage done to the value of long term savings by the bear market of the last two years is profound and generally unappreciated. But where are the dole queues, and where is the belt tightening?
As for all the over investment, well, it may have cost its financiers their shirts, but it has provided the rest of us with a brand new, information age infrastructure to lighten our load and enrich our lives. Only the lucky few manage to make their fortunes out of technological revolutions, but for the economy as a whole, they are invariably great drivers of growth and prosperity. This one doesn't look like being any different.
One final thought, lest these musings make the disaster of ITV Digital seem like just an inevitable part of the digital meltdown in general, for which no one in particular should be held accountable. ITV Digital was from the start a disgracefully poor service, technically and in every other respect, which thoroughly deserves its present fate. ITV made just about every mistake in the book during the service's brief and inglorious life, and its inability to change, adapt and thrive in the brave new world of multi-channel TV it now finds itself in is a damning indictment of past and present management.
That the City is not demanding scalps is extraordinary, and only explained by the belief that it cannot be long before both Carlton and Granada are absorbed within larger, foreign controlled media groups.Reuse content