Outlook: Another seismic shift in Britain's TV landscape takes hold

Profitless growth

Bang, bang. What's that noise? It's the sound of ITV repeatedly shooting itself in the foot. Having allowed the attempted recruitment of Dawn Airey, chief executive of Channel Five, to assume the proportions of a make or break hire, it would have been bad enough had she decided to spurn ITV's advances and stay where she is, but that she's going to BSkyB instead is about the worst outcome there could possibly be for Britain's beleaguered commercial TV network.

ITV and its two main owners, Carlton and Granada, were trying to put a brave face on it yesterday, but beneath the facade there is a tangible atmosphere of failure and resignation. Outgunned again. There are alternatives, of course, but this was the programmer they wanted, and the fact that she thought Sky preferable to what was only a few years ago still the destination of choice for anyone in the business of mass entertainment TV tells you all you need to know about ITV's now perilous position.

For Sky, which scarcely seems to put a foot wrong these days, it's a brilliant manoeuvre, and were it not for the fact that it appears to have all been Tony Ball's handy work, it would be regarded as classic Murdoch. It would have been worth Sky's while to poach Ms Airey just to spite ITV, but it is also getting a class act top. On relatively little money, Ms Airey has transformed Channel 5 into a valuable little property which is piling on both audience and advertising market share. For any organisation, she would be quite a catch. But for Sky there is symbolic significance in the appointment too. As Sky gleefully points out, six years ago David Elstein quit Sky to become chief executive of Channel Five. With Ms Airy coming back to do Mr Elstein's old job, Sky has reversed the flow. There's not much doubt about where the top talent think the future lies.

Ms Airy was right not to go to ITV, quite apart from the money, which was presumably not nearly as good. ITV is a dysfunctional mess, torn this way and that by the warring companies that own it. ITV says it is turning the corner. Ratings are improving again, while forward booking of advertising is looking healthier than it has been in ages. But until ITV is allowed to consolidate under the ownership of just one company, it will always lack the focus to succeed against the ever growing and more self confident competition. Unfortunately for Granada's Charles Allen, ITV may have quite a bit further to fall before competition regulators will allow such an outcome.

With Dawn Airey's arrival at Sky, the competition just got a whole lot worse. Sky was playing down suggestions that she's been deliberately recruited to launch a mass entertainment free to air channel that would go head to head with ITV and Channel 5, but it is hard to believe that's not the game plan. Sky is over the hump of its investment in digital, ITV Digital has gone, the set top box price war is but a distant memory, and the company will soon be generating oodles of cash again, the more so because the cost of its main content, sports and film, keeps falling.

Sky will soon have lots of money for entertainment and documentary content, and Ms Airy is just the person to spend it. Thanks to the demise of ITV Digital, there will soon also be a free to air digital platform on which to show it. Theoretically the Independent Television Commission could stop such an expansion, but it is hard to see what justification there could be, other than to protect ITV. On that front, ITV ran out of favours a long time ago. It's strange to think that the ITV franchises were once described as a licence to print money. They haven't been that for quite a while, and with Sky's advance into the free to air market, the last vestiges of ITV's monopoly of commercial TV will disappear for ever.

Profitless growth

All of a sudden, London seems full of the giants of American business, investment, and economic policy making. Warren Buffett is here to promote his corporate jets business, Alan Greenspan is here to receive his honoury knighthood, his predecessor as chairman of the US Federal Reserve, Paul Volker, is here to support Warren Buffett, and Steve Ballmer, chief executive of Microsoft, is here to sell more software. The first three may not be so sure any longer about America's economic might. Mr Volker worries about economic imbalances, Mr Greenspan is still struggling to deal with the aftermath of the technology bubble, while Mr Buffett, as careful as ever about predicting the future, is happier to tilt his hunting gun at Europe than the US. Only Mr Ballmer is unambiguously upbeat, for his company, his industry and eventually for the US economy.

According to Mr Ballmer, the impact of the information technology revolution over the next 20 years will be just as great as the last 20. In the movie, The Graduate, Dustin Hoffman asks of his lover's husband which industry he should go into. "Plastics", came the reply. Today, says Mr Ballmer, the answer would be "software". Mr Ballmer is in no doubt that the industry has and will continue to be a tremendous engine of productivity growth, in the US and elsewhere, and he cites developments in ease of networking and speech recognition software to support his case for continued progress. What he's not so sure about is whether any of these developments will translate into real profits for the companies that apply them. Bill Gates, his chairman, once remarked that profit is not a natural state for companies, by which he meant that in a perfect market, profit will be constantly competed away.

Compounded by the overinvestment of the last boom, that's precisely what seems to be happening at the moment. Throughout the developed world, big companies are struggling to make decent profits. In the US, the economy is growing once more, and strongly by European standards, but the trick is being achieved on a sea of low interest rates. The big car makers are being forced into virtually giving away their goods through interest free loans and cash back deals in order to shift their output. Overcapacity is rife across a raft of industries. For many manufacturers, the idea of a being able to push through a price rise is these days so outlandish as to seem to belong to an altogether different dimension.

Productivity gain is one way in which companies can counter this downward pressure on prices and profits, but if the means to do this is being rolled out by companies like Microsoft across the industrial landscape, there's no competitive advantage and all the benefit goes to customers. Paradoxically, Microsoft has so far proved adept at countering these pressures in its own industry. Or, as Mr Ballmer puts it, ability to make profits in these markets depends crucially on "how good is the moat you can build around the company to protect its position".

Through its Windows PC operating system, Microsoft's moat remains formidible, but as Mr Ballmer concedes, it's a struggle even for companies with leading market positions. Microsoft is spending more than ever on early stage development, but it is not obvious it will ever make a profit from it. Commonsense would suggest profitless business is an unsustainable phenomenon, and if something is unsustainable, then it won't be sustained. Only trouble is, as the market seemed to recognise yesterday in falling to a new six-year low, the unsustainable can go on a long time before it becomes unsustained.

jeremy.warner@independent.co.uk