Outlook: Strategic challenge

CHARLES ALLEN, chief executive of ITV, may or may not be much of a broadcaster, but he certainly seems a dab hand at winning concessions from the regulator. To the astonishment of all, he managed to win approval for the ITV merger with minimum conditions. Now he's persuaded Ofcom to allow ITV to halve its commitment to non news, regional programming, with the eventual intention of reducing it to just half an hour a week after the digital switchover in 2012. Come June, he's hopeful of also securing a considerable reduction in the amount ITV pays the Treasury for its franchise licences.

The savings won yesterday are not huge - perhaps pounds 10m out of public service broadcasting obligations estimated by ITV at some pounds 250m a year. Yet also in Mr Allen's line of fire are commitments to religious, arts and children's programming, where the costs are a good deal higher. In an age of increased fragmentation for commercial TV, it becomes progressively harder to hold ITV to these obligations. Ofcom's broad brush view on this - that the BBC should remain the cornerstone of public service broadcasting, allowing ITV more freedom to pursue mass market, commercial audiences - very much fits with Mr Allen's own strategy for reviving the company's fortunes.

Not everyone agrees with Ofcom's approach. Ed Richards, the Ofcom executive who conducted the review and a former adviser on the media to No 10 Downing Street, is dismissed by some as an ignoramus who is presiding over a disastrous retreat from regional programming. Yet it is hard to see what the alternative is. ITV remains a relatively strong brand only because free to air, multi- channel TV is still in its infancy.

Never mind Freeview, broadband opens up a whole new spectrum of possibilities for broadcast TV. ITV's God Slot will find it harder and harder to compete for significant audience share in the brave new world we are about to enter. Much better that ITV makes its programming in the regions than that it makes bad programmes nobody wants to watch about the regions. Niche markets exist for this type of stuff; the beauty of digital and broadband TV is that it can now be delivered at low cost to those who want to watch it without having to force it on to the rest of us.

Mr Allen was lucky to have survived the disaster of ITV Digital and although he has since won plaudits in the City for steering the merger through the competition authorities and for the further regulatory concessions he is now winning, it will all count for nothing if he fails to defend and grow the top line. However much ITV manages to reduce costs, the growth of alternative media means the company remains strategically highly challenged. Mr Allen hopes to stave off the decline in market share that will inevitably occur in the core ITV1 brand by adding and promoting new channels, thus outdoing competitive fragmentation. For instance, the sequel to Footballers Wives, Extra Time, will be first aired exclusively on ITV2. The technique is already being used with mixed results on some of the BBC's digital channels.

Whether it will work is anyone's guess. Mr Allen appears to have survived the frying pan but he is not yet out of the fire.