Pearson's eyeball-counter focuses on a bigger prize

THE MONDAY INTERVIEW: Greg Dyke

It has emphatically not been a good year for Pearson, the pounds 7bn media and financial services conglomerate. But it hasn't been a half-bad one for the man who runs Europe's largest independent producer, Pearson Television - Greg Dyke.

Consider that Grundy Worldwide, the makers of Neighbours, produces soaps and game shows in Germany, Holland, Sweden and Italy and ten other countries. Or that Thames, makers of The Bill, are supplying popular programmes to ITV, cable and satellite channels and Channel 4. Or that SelecTV, the production company, is starting to export its award-winning formats to international markets, on the strength of hits like Birds of a Feather, Lovejoy, Shine on Harvey Moon and Auf Wiedersehen Pet.

"Two-thirds of our profits and half our revenues now come from overseas," Mr Dyke points out proudly. Revenues in the half-year ending June 1996 were pounds 100m, up 66 per cent year on year. In 1997, the stakes get even higher, with the launch of the new Channel 5, in which Pearson Television has a 24 per cent stake, and for which it is a privileged supplier.

Pearson as a whole is a different story. Uneven profit performance, bad acquisition judgement, and mounting criticism over its corporate strategy have fuelled a year of takeover speculation and the early departure of the chairman and the managing director.

The differing fortunes of the group and one of its leading subsidiaries is, one suspects, behind Mr Dyke's year-long refusal to do a major interview in the business press. Those close to him say he was just getting on with the job. But Pearson insiders concede he was keeping his head down for another reason. Why annoy management at head office, who were fighting off unwanted attention, takeover talk and potshots from analysts, by appearing to take public credit for Pearson Television's stellar performance?

The silence was all the more necessary when speculation began to grow about Mr Dyke's fervent wish to form a buyout group to purchase the television subsidiary. Pearson, which is in the midst of a wide-ranging rethink about its strategy, has not ruled out the idea of spinning Pearson Television off to shareholders, or even selling it.

Mr Dyke, a man of enormous television talent, even if possessed of a rough-hewn management style, had been widely reported as having sounded out the City on an MBO. The idea was not wholly incredible, as Mr Dyke has personal money (pounds 8m was his share of the windfall when his then company, LWT, was bought out by Granada in 1994). He also has won the respect of many in the City, who (mostly) like what he has done with Pearson Television.

The speculation was fuelled by persistent takeover rumours that swirling around the sprawling parent company, which in addition to Pearson Television owns Madame Tussaud's, Penguin Books, Addison-Wesley-Longman, the Financial Times, 50 per cent of the Economist and 50 per cent of Lazard, the merchant bank. Too diffuse a group of operations, the City complained. Worse, an ill-fated attempt to diversify into the CD-Rom and electronic games market, through Mindscape of the US, brought nothing but misery to the management that masterminded the acquisition.

Last week, Mr Dyke re-surfaced. In an exclusive interview with The Independent, he happily discussed his wide range of responsibilities - Thames Television, SelecTV, and particularly Grundy Worldwide, the production company bought for pounds 175m 18 months ago, as Mr Dyke's first big corporate move.

But he would not comment on the arguably more fascinating behind-the- scenes developments at corporate head office, not least the departure of Frank Barlow, managing director, and Lord Blakenham, the chairman and last remaining Cowdray family representative on the board.

He is equally tight-lipped on the challenge facing Mr Barlow's successor, the US-born Marjorie Scardino, formerly chief executive of the Economist group. She is to begin the new year with a series of strategy meetings with senior management, including Mr Dyke, who sits on the main board.

"You're the one I am meant to like," Ms Scardino was overheard to say to Mr Dyke when they first met. The two ought to get along: both are cheerful, bright and unpretentious; neither likes the stilted, blue-blooded atmosphere at 3BG, as insiders have christened headquarters at 3 Burlington Gardens, central London.

But does she like him enough to give him what he wants - Pearson Television? The coming year will tell.

Meanwhile, Mr Dyke professes to like what he is doing. He likes the risk and the rewards of taking Pearson into international markets, exploiting a stable of rights to popular programmes. "I'd rather be a rights-owner than a broadcaster," he declares, in what might be taken as his mantra.

In the future, Mr Dyke says, broadcasters will be less important. The real value will be generated by those who own the programmes. Fragmenting audiences, the launch of digital TV and the gnawing demand for cheap, plentiful shows will conspire to give Pearson Television an advantage.

So why aren't the traditional broadcasters doing the same thing? "I came out of ITV, and certainly I can say that it is not the kind of business that encourages you to take risks," Mr Dyke says. "We have known about the challenges of digital, of rights, of new competition in broadcasting, and the need to expand overseas and on the Continent. But not one of them has done anything."

The other problem is that the traditional broadcasters are too stuck in their elitist ways. In the UK, you are not applauded for the popular programmes. The production process was captured by the intellectual elite."

In the end, the logic of the changes in UK television will mean broadcasters will want to expand more aggressively into programme-making and rights acquisition.

"The monopoly is crumbling and broadcasters will have to own their product."

Mr Dyke has thought it all through. "As broadcasting fragments, it becomes harder and harder to hold on to brands. The ones with the good names are worth their weight in gold. You couldn't afford to build The Bill from scratch today. Building the name will get harder.

"I guess what I am saying is that, logically, broadcasters need to look at owning a company like Pearson Television."

That's as close as he will come to conceding the company could well be bought one day, and not necessarily by him. Rupert Murdoch's BSkyB has already looked carefully, aware it needs to develop a true presence in British programming if it is to reduce its huge programme acquisition budget.

The big challenge in 1997 will be to get Channel 5 right. Mr Dyke will become chairman of Channel 5 Broadcasting in the New Year, and has been taking a close interest in the preparations for launch.

He has had to live down his infamous contention that the controversial door-to-door retuning exercise - necessary to ensure VCRs don't suffer interference from the signal - was nothing less than a "burglar's charter". "That was the most expensive comment I ever made," he says. "Just look at the security features we had to build in as a result of that quote!"

He says that he is unbothered by the rocketing costs of retuning, now estimated at pounds 180m compared to just pounds 55m in the Pearson-led Channel 5 bid. Part of that stems from the addition of 4 million new homes in areas that originally could not have received the signal.

"The extra retuning costs are not a problem for the shareholders, because the more eyeballs there are, the more money we can make," Mr Dyke says.

Not a bad set of challenges to keep a chief executive busy. A new channel, global acquisitions, the prospect of digital television by the end of 1997. And in the midst of it all, a radical restructuring of Mr Dyke's parent company, perhaps even the demerger of the television operations.

Mr Dyke may be counting eyeballs for the new Channel 5, but his own eyes look focused on the bigger prize: growing Pearson Television, and one day perhaps owing part of it.

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