Mathew Horsman on the media

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Why can the BBC and Sky afford to be smug about ITV, despite ITV being the undisputed market leader?

Unlike the regional broadcasters, both the Beeb and Rupert Murdoch's pay-TV giant take a clear and consistent view of their marketplace, weighing up opportunities and taking decisions (the BBC takes them more slowly, granted). The ITV companies, by contrast, fight among themselves, the victims of outsized egos and hubris. Commercial wisdom dictates that the companies ought to co-operate. Yet getting the franchises to work together has been a challenge ever since the regional network was established in 1958.

This caused few problems in the past. ITV licences were also a licence to print money, so who needed strategy? Sure, a few companies occasionally ran into trouble. Some - HTV and YTT, for example - gloriously overbid for their current licences, and have to make an uncomfortable tithe to the Treasury.

Still, the money has been good. Enough to ease the pain of seeing audiences drop off marginally under the onslaught of a reinvigorated BBC.

But there are huge changes afoot and the ITV companies are in danger of being left behind. By the early years of the next decade, more money will be generated by subscription fees for TV than by television advertising. That means more money for Murdoch's BSkyB, which is already attracting close to pounds 1bn a year, and for the cable channels, which may finally have begun to market their services (telephone and pay-TV) more effectively.

The BBC has expensive analysts at Policy and Planning charting the implications of this. They have determined that the public broadcaster's share of the TV audience will drop to 30 per cent within a decade as a result of fragmentation through satellite, cable and digital services. The obvious answer is to find additional outlets for BBC programming - for instance, on cable and satellite. Even the slothful BBC has begun to diversify into these new markets, launching - with the media company Pearson, UK Gold and two European satellite channels - BBC World and BBC Prime.

Sky takes such a long-term view that few can be sure where Murdoch hopes eventually to take the company. Murdoch-watchers can attest to his strategic vision (whatever you might think of his tactics). How else to explain the awesome bet he made on Sky? He and his TV lieutenant, Sam Chisholm, are keeping the competition guessing. Will they launch pay-per-view for sporting events this year? Will they attempt to move from analogue to digital satellite before the introduction of digital terrestrial television, scheduled for the end of the decade? You can be sure that the endgame has already been worked out. And unlike most media companies, which have to debate major moves at great length, BSkyB takes decisions quickly.

In comparison, most ITV companies have been standing still. The best way forward would be an ITV Gold, a cable or satellite channel featuring the best of the ITV output. Repeats of stellar programmes from the ITV back library would match anything UK Gold can produce.

There have been efforts by some ITV companies to co-operate and, doubtless, the coming consolidation following the passage of the Broadcasting Bill will make it even easier for the soon-to-be-merged ITV companies to act together. The two largest licence holders, Granada and Carlton, held talks last year about the joint development of pay-TV services. But negotiations broke down, and Granada opted to work with BSkyB to set up five satellite channels, with at least one featuring old Granada programming. A Granada Gold might work for a year or two, but just how many repeats will the paying audience endure? UK Gold is already into the third rerun of some of its popular programmes.

Carlton has decided to have its own cable channel and is likely this week to pay pounds 5m for SelecTV's money-losing cable operations, as part of a deal involving the sale of SelecTV to Pearson for pounds 45m.

Working separately makes little sense. There are too many problems in going it alone - everything from running out of quality programming to difficulties in getting carriage on Sky's multi-package or a slot on the crowded cable network.

MAI, which controls the Meridian and Anglia licences, has also decided to make a small bet on cable, agreeing in principle to invest in Rapture TV, the channel being launched later this year by Kudos Productions, the independent production house, and Rocket Science, the media buyer. They are aiming for unusual demographics - the 12- to 20-year-old audience - with a mix of educational and entertainment programming. MAI's backing may help the channel to get the necessary cable distribution contracts.

But that is small beer. The fact that ITV companies are doing so little and, moreover, are acting on their own, is cause for concern.

Most ITV companies laughed at Sky in the early days, assuming the programming would never attract a significant audience. No one is laughing now. Indeed, with a dominant position in sport and film, and growing audiences thanks to the penetration of cable and satellite, Sky, already Britain's most profitable broadcaster, will soon have the financial might to relaunch Sky One, its general entertainment service, as a true mass-market channel.

Nor should the mainstream broadcasters be laughing at the early pioneers of cable. It may be amusing to joke about Channel One having just one viewer, but some cable channels will succeed.

The combination of new threats from cable and satellite and the new Channel 5 service which, according to some forecasts, could take 10 per cent of audiences within three years of launch, will deliver ITV its biggest challenge ever.

Some serious collaboration - and swifter moves into pay-TV - are desperately needed. Only then will the threat be seen off.