ITV plans satellite challenge to BSkyB

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ITV is planning to launch a new satellite TV channel next year to challenge Rupert Murdoch's BSkyB. The managing directors of all 15 ITV companies agreed in principle last week to go ahead with the scheme.

The channel, dubbed ITV 2, would launch next year on the Astra satellite - which BSkyB also uses - and would offer 'high-quality re-runs' from ITV's archives. It would be free to viewers at first, making its money from advertising.

A feasibility study, including a business plan, compiled by London Weekend Television and the consultants Booz Allen and Hamilton was presented to the network at a meeting last week.

However, ITV companies will not be asked to make a final decision on providing financial backing for the channel until more in-depth research has been completed in a month's time.

One ITV managing director at the meeting said: 'What is clearly hardened is the interest and desire to pursue it further. There were a lot of questions, but nobody stood up and said 'no, this is not for me'.'

According to Greg Dyke, chairman of ITV, less than pounds 50m would be needed to see the project through to completion. But he warned: 'Clearly, we need to know that it is not a hole in the ground in terms of cash.'

ITV 2 was initially conceived after BSkyB won the contract to show Premier League football earlier this year, and was seen as a tactical move to draw audiences away from Sky in the growing number of homes that have satellite dishes. Now ITV believes the channel could operate as a stand-alone service.

'Whilst there was some commitment to a spoiler channel, it now looks quite an attractive proposition in its own right,' one ITV director said.

At the moment, just under 5 per cent of ITV programmes are repeated, and ITV is as keen to create a new market for its back catalogue as it is to dampen competition from Sky.

Booz Allen and Hamilton has been asked to address two key issues: the acquisition of satellite rights to programmes more than four years old and the true number of dishes in Britain.

ITV owns the satellite rights to shows made since 1988, but will need to clear rights for older material to ensure there is enough to fill an 18-hours-a-day service. LWT has already spent pounds 300,000 clearing the rights to programmes back to 1969.

Penetration of satellite dishes may also be crucial to the decision, although some senior ITV executives believe a high penetration is inevitable in the next few years. Last week, ITV publicly disputed BSkyB's claim that there were 2.46 million dishes installed at the end of June, pointing out that GFK Marketing, a brown goods research company, put the latest total at just 1.77 million.

Some within ITV believe the lower figure would give it a better chance of consolidating its position in the satellite market, but others believe it weakens the viability of ITV 2 and that the launch should be delayed until the market is bigger.

Part of the impetus to set up an ITV satellite channel almost certainly comes from the increasing pressure on the independent companies to find new sources of revenue. ITV companies face the alarming prospect of no real growth in advertising revenues for the next 10 years, according to forecasts by Zenith Media, the media-buying arm of Saatchi & Saatchi.

The outlook is worse than when they put in their bids for Channel 3 franchises 18 months ago. Revenues will remain below the peaks achieved by the ITV companies in 1988 and 1989 until well into the next century.

Flat airtime sales could spell trouble for the ITV companies, some of which start broadcasting for the first time on 1 January.

Some companies, such as Yorkshire, Anglia, HTV and the new breakfast franchisee, GMTV, are relying on advertising revenues to pay for the hefty bids they tabled last year.

Zenith's media research director, Frank Harrison, says the outlook for the next four years has worsened slightly because of the protracted recession. In February last year, Zenith was predicting real growth in ITV advertising revenues of 2.7, 1.8, 1.9 and 1.5 per cent over the next four years, but it has brought these predictions down to 0.3, 0.4, 1.2 and 0.4 per cent.

The ITV struggle, page 6

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