Sky is set to fall in on ITV Digital, warns TV chief

Survival of digital channel is left in the air as owners reveal that cost of keeping up with Murdoch is proving 'unacceptably high'
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ITV Digital's survival battle looked increasingly desperate last night after one of its joint owners admitted that the cost of trying to keep up with Rupert Murdoch's BSkyB was "unacceptably high".

Charles Allen, chairman of Granada, which owns 50 per cent of the digital television platform, conceded that it could not continue funding its spiralling losses as his own media company announced a loss of almost £200m for the past year and confirmed 1,100 redundancies.

He revealed that ITV was talking to rivals, including BSkyB itself, about helping to bail out the company.

The plight of ITV Digital will heighten concerns about Mr Murdoch's pre-eminent position in the digital television market in the run-up to the switching-off of the analogue signal, due to start from 2006. At present, ITV Digital represents the main competitor to Sky.

Stuart Prebble, chief executive of ITV Digital, will meet representatives of all 72 Nationwide League football clubs in Nottingham today amid concern that the company cannot afford to honour its broadcasting deal, which runs until summer 2004. It is worth £315m to the clubs over three years, but there has been speculation that ITV might have to withdraw from the deal.

Such talk was played down by the Football League yesterday. "ITV Digital paid £41m up front last summer, and has already paid £89m for this season," a spokesman said. "That's £130m, and the next payment, of £89m, is not due until next August. Granada have issued a statement saying they will make sure the commitments are honoured. There are no plans to change the deal and no need to renegotiate." The spokesman said Mr Prebble was attending the meeting simply to outline how he felt the first few months of the deal had gone.

Mr Allen said: "Granada and Carlton [ITV Digital's other shareholder] have both indicated that their current intention is to provide funds to ITV Digital and ITV Sport to enable their businesses to meet their operational requirements as and when they fall due."

Carlton and Granada, the two biggest ITV players, have already sunk £800m into ITV Digital, which allows consumers to receive a digital signal through a normal television aerial. Another £350m is needed before it can become profitable in 2004.

Yesterday Granada gave its clearest indication that it needs a partner to cut the future investment required. Mr Allen said: "The investment in ITV Digital is unacceptably high, given the advertising downturn."

It is understood that ITV is talking to Sky, which has 5.5 million customers, compared with 1.2 million at ITV Digital. ITV has already had to swallow its pride and announcethat it will pay Sky to carry its main ITV channel and ITV2, its secondary channel, on Sky. However, ITV Digital is now looking to reduce its costs by getting Sky to take on the management of ITV Digital customers, under a contract certain to be lucrative for Mr Murdoch's company.

It is also in discussions with the BBC and other players, thought to include the cable companies and British Telecom, over a further deal that would stem losses at ITV Digital and reduce the amount of money needed to see the business to profitability.

Yesterday Granada reported that advertising revenues fell by 12 per cent for the financial year to 30 September. Its main operations lost £186m for the period. The company revealed that it had sacked 650 employees in the past year and will cut 430 more jobs over the next six months.

Carlton, a smaller company, is said by analysts to be feeling the pinch even worse. It is lobbying ministers to be allowed to merge with Granada to save money by combining operations in a single ITV company. The Government appeared to back that plan in this week's media ownership consultation paper.