Lisa Opie on Broadcasting

If multichannel TV is to thrive, we have to kick the regulatory habit and let the digital market decide

The reality of the media business today is that everyone is questioning whether they should swap their steady relationship of the last 20 years for a newer model - or considering if they're ready for an open relationship. But, in spite of the Valentine's Day timing, pure telecoms companies and creative types make for strange bedfellows. Endemol should know this better than most; witness the steady cooling of its relationship with the Spanish telco giant Telefonica.

After all, what exactly is this "high-quality programming and compelling interactive content" that BT promises? How will audiences actually find it? And will anyone care if they do?

The great flaw in the "Freeview plus video-on-demand" plan of BT, Wanadoo and the other late arrivals to the pay-TV party is that they're turning up very late. Cable and satellite have already attracted the best customers who love great television, watch lots of it and are prepared to pay for it. Freeview may be reaching more and more homes, but they're the homes that watch much less TV and are much more cautious about paying for anything. Are they really going to be interested in cutting-edge interactive games and 200 pay-per-view movies on demand? I doubt it. Even in the most future-facing TV home, audiences will always seek out content that's most relevant to them, which makes creativity and branding even more important than they are today. The one constant in the intensely competitive world of multichannel TV is the importance of brands that help audiences to find the content they want. In more cases, this relies on the tried-and-tested model of "channels" that create an affinity with their viewers. Companies such as Flextech and UKTV know this instinctively. If the broadcasting industry gets it right, the winners in the on-demand and mobile future will be those who use their talent to lead their audiences with them by extending brands that they already value and trust.

At times like these, television can feel like the most ferociously competitive and innovative market imaginable. It may seem rude to point it out as we hurtle towards our new media future, but the reality is actually somewhat different when you look beneath the surface. The fact is that UK television remains a heavily and conservatively regulated industry. Its core remains a model that has been in place since the 1950s - restricted or gifted broadcasting capacity and a television advertising market dominated and controlled by "public service broadcasters", backed by statute.

Around the margins, so much has changed. The task of competing for attention in a Sky + home with more than 200 basic channels, a stack of premium movie and sport options, DVD players, games consoles and broadband-enabled PCs is not for the faint-hearted. (Is it any wonder that ITV1 loses half its analogue terrestrial share in a Sky home?) The pace of change - in consumer expectations, in technology and distribution and in our own commercial relationships - is blinding.

The instincts of many in the business often feel extraordinarily cosy and conservative when compared to those in other sectors. But the tensions between the 20th-century public policy objectives and the 21st-century marketplace are becoming impossible to resolve. Take, for example, Ofcom's Production Sector Review that's grinding on, due for completion later in the year. This is a critical piece of thinking from the regulator. It should set the conditions for broadcasters, independent producers and platform owners to interact on the uncertain terrain of the on-demand world. The crucial issue at stake is who should own and control intellectual property rights in commissioned programmes - and therefore who should control the exploitation of those programmes via new on-demand and mobile services. In January, Ofcom told the warring parties to go away and resolve their dispute - or they would be forced to intervene.

In truth, neither of these two approaches is ideal, because it is becoming nonsensical for the regulator and the key protagonists to continue talking about promoting "free markets" in one breath, and then "protecting public service broadcasting" in another. However absurd, this paradox may have been sustainable in a linear analogue world of five channels, but it is completely impossible now. Say what you like about markets, but they do tend to solve issues like this squabble about rights in a pretty efficient way. In the long term, most sensible independent producers sincerely want to be able to negotiate their deals with broadcasters in a competitive, open market, rather than through the lottery of the regulator's favour. But interventions in another part of the regulatory garden have consequences for this particular flower bed.

Nothing discussed in this review so far does anything about the elephant on the lawn: that four dominant customers will still constitute nearly 90 per cent of the market for independent production. For as long as the dominance of these four terrestrial players is tolerated in all areas of the industry, the longer Ofcom will need to keep the peace between the content creators and the broadcasters. This is hardly Ofcom's fault - it's just what happens when public policy objectives constantly trump market-based solutions.

For now, Ofcom must do the best job it can to limit the big four's ability to serve their own narrow interests by restricting true competition for rights. They must also make sure that they do not damage the conditions for more investment in programming from pay-TV channels. But let's say it loud and clear: at some point the television industry needs to kick the regulatory habit, ditch its incumbent mentality and embrace the uncertain and nerve-racking digital future.

Lisa Opie is the chief executive officer of Flextech, whose channels include Living and Bravo

Greg Dyke is away