Retuning the key factor for Channel 5

The similarity of the bids makes it difficult to decide a winner,; Most variable of all is the budget to retune more than 4 million VCRs

All four bidders for the licence to run Channel 5, Britain's last terrestrial television service, are prepared to spend pounds 124m-pounds 147m a year to get their schedules up and running, according to figures compiled by The Independent.

Where the bids vary is in the way they share out the total financial commitment among three categories of spending: programming, licence fee and - most variable of all - the budget to retune more than 4m VCRs and television sets to enable viewers to receive the new signal.

The similarities will make it difficult for the Independent Television Commission to decide on a winner. It must choose the highest bidder, subject to quality threshholds and the viability of the business plan. But there are many other issues, and as the process of evaluating the four bids continues, it is becoming clear that the retuning plans may be a decisive.

After all, the four all have extensive television programming experience. UKTV plans some international co-productions, while Channel 5 Broadcasting is relying in part on "template" television specialists Grundy, the Australian company bought earlier this year for pounds 175m. The other two, however, have contracted exclusively with seasoned independent television producers in the UK to provide content.

As well, all four have marketing plans and proven track records in selling advertising space. While UKTV, with partners CanWest, Scandinavian Broadcasting System and the Ten Network, may be deemed to have too much foreign involvement, the other bidders should have few problems meeting what the ITC calls "qualified" bidder status for Channel 5.

The Government's recent decision to allow newspaper publishers such as Pearson, one of the partners, with media and financial services company MAI, in Channel 5 Broadcasting, to own a terrestrial broadcaster outright obviates the need to establish creative ownership structures to get around the rules.

For its part, UKTV has contingency plans to bring in two UK financial institutions as investors should its partners be disqualified.

The retuning costs, which the ITC insists must be met by the successful applicant at no cost to the viewer, have already scared off would-be broadcasters such as Telegraph Groupand US broadcaster NBC. The latter bowed out of the Mirror Group's consortium leading it to abandon its bid.

The retuning exercise is necessary because of the way Channel 5, envisaged to reach upward of 70 per cent of UK households, is to be transmitted. Along an already crowded UHF spectrum, the new channel will be broadcast in most areas on channel 37, currently used by many VCRs in Britain for the playback signal that allows viewers to watch videotapes. Retuning is complicated by the sheer number of different models in UK homes, and interference from cable and satellite installations.

"It's a simple exercise replicated over a very large scale," says John Hambley, chief exectutive of Channel 5 Broadcasting.

All the consortia have detailed retuning plans. Three consist of a "blanket approach" whereby representatives of the channel would visit every home affected.

The odd man out is the consortium led by Richard Branson's Virgin TV, which includes Paramount Television, ITV licence holder HTV, Associated Newspapers (and partners White Rose), Philips Electronics and venture capital company Electra.Virgin intends to set up a toll-free 0800 number to allow viewers in the Channel 5 area to ring in to learn whether a visit is necessary.

The other bidders are scornful of Virgin's approach. Kenneth Goldstein, a consultant who helped develop the UKTV retuning plan, says the toll- free system would be cumbersome and inefficient, and risk leaving many Channel 5 viewers without a signal come launch time.

UKTV also doubts Virgin TV's claim that its contracting supplier of the toll-free service, British Telecom, could handle the volumes of calls likely to come in the first few days of transmission.

Stephen Taylor, the architect of Virgin's plan, dismisses such criticisms. He says Virgin intends to roll out the service area by area, and could easily manage all the expected phone calls. He adds that Virgin has been guided by concerns about security. "British Gas and other utilities have tried to stop doing cold calls altogether, because of the security issue," he says. "Our system will be far safer."

Viewers who called the toll-free number would be asked the make and model of their receiving equipment. Virgin would have up to 700 television and VCR specifications in an elaborate data base, allowing BT to collect all relevant data. Virgin would then decide whether a home visit was necessary. A quarter of homes would be sent baseband connectors to be fitted by the viewer, according to Virgin TV's estimates. In the case of a home visit, viewers would be given a security code to identify the retuner.

UKTV's Goldstein warns that Virgin may have to send engineers into neighbourhoods several times, in response to phone calls on different days from different viewers.

Under the blank approach the other bidders would start with a mail drop, and may use posters and other marketing means to alert householders when engineers, issued with uniforms and identity cards, would be in their neighbourhoods.

Channel 5 Broadcasting, which would take a "Big Bang" approach to launch the entire network by the 1997 start date, would also use a national television advertising campaign by Saatchi & Saatchi.

New Century Television, the consortium led by satellite and cable broadcaster BSkyB, in turn 40 per cent owned by Rupert Murdoch's News Corporation, would also visit every home affected. If successful - and that must be in doubt, given the low-ball bid of pounds 2m for the licence - it intends to use the retuning exercise to market the new channel, encouraging even those who cannot receive the signal to sign up for BSkyB's satellite service, which would provide clear transmission.

Training for retuners varies among the bidders. UKTV would use National Electronic Service Network, an alliance of 58 service companies, in addition to 900 contract technicians. Channel 5 Broadcasting is to have 4,000 retuners clustered around what it calls local "rectifiers". Channel 5 Broadcasting would make the chief executive directly responsible to the board for the retuning process.

The ITC is now engaged in a review of the four bids, and promises a final selection by November. The decision could come earlier, depending on issues such as problems with programme quality or the financial aspects of the business plan. It is even possible that the two second-place identical bidders, Virgin TV and Channel 5 Broadcasting, may be asked to rebid should UKTV be disqualified.

In any event, retuning plans, perhaps the most important element of all, will be carefully scrutinised by the ITC.