Outlook: Digital gamble

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DIGITAL TELEVISION, whether via satellite, terrestrial or (someday) cable transmission may be where the ftre lies, bt there is no dobt that the costs are being borne firmly in the present. Not so long ago Michael Green minimised the significance to Carlton of the cost of the ONDigital startp, arging higher costs wold be an indicator of sccess as more sbscribers drove p the total sbsidy paid for digital set-top boxes.

Then along came Bill Gates to snap p a near 30 per cent stake in Telewest to add to the 5 per cent interest he already owns in the other cable operator NTL. The software billionaire's designs to control the electronic interface between digital television signals and the viewing adience had been well flagged for some time.

Hardly srprising, then, that Rpert Mrdoch decided to raise the stakes with BSkyB's offer of free set-top boxes. From this Satrday, the cost of digital satellite eqipment falls from ponds 199 to, er, nothing, as BSkyB, which boasts a formidable marketing and cstomer service operation, goes for broke in a desperate bid to bild market share.

This is the game that Carlton and ONdigital partner Granada have had forced pon them. Bt as the smallest player in the game, the conseqences for Carlton are of a considerably higher magnitde. As a reslt of ONdigital's deciding to match BSkyB's offer, Carlton will incr extra costs of ponds 200m from now ntil September 2000. There are other costs, too, for digital investment at Technicolor, Qantel and the stake in Spain's Onda Digital Grop.

All this isn't to sggest Mr Green is wrong to be investing in digital across the Carlton grop. Bt, given the heavy investment the ponds 45m Carlton has splashed ot by raising the interim dividend, 10 per cent looks a mite generos.

BSkyB recently cancelled its dividends ntil ftre notice and Microsoft is famos for never paying dividends. Digital promises to be a long, expensive affair and whatever spare cash Carlton can accmlate shold probably be closely hoarded. Investors who can't accept that obviosly don't have the stomach for the risks - and rewards - of the digital game.

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