Greg Dyke on Broadcasting

Freeview's growth and lure of ad sales poses threat to BSkyB

Logically, the runaway success of Freeview - more than half-a-million boxes were sold in November alone - should result in a series of digital-television channels giving up their current pay status and instead taking their chance with the advertising market.

Logically, the runaway success of Freeview - more than half-a-million boxes were sold in November alone - should result in a series of digital-television channels giving up their current pay status and instead taking their chance with the advertising market.

Switching from "pay" to "free to air" would mean an immediate financial penalty for a digital channel as it would lose the subscription income it receives from BSkyB and the cable companies although the channel would still be available in all "pay" homes. However, to counter this the channel would immediately be available in an additional six million homes - five million with Freeview and another million former BSkyB homes where people still have satellite dishes and boxes but have rejected the pay services. Logic says such a move should bring a significant increase in advertising revenue.

So the financial calculation for a channel owner is a simple one. Once the projected increase in ad revenue is higher than the known loss in subscription income, the channel would switch to "free to air".

Given the rate at which Freeview is growing it would seem odds-on that a number of channels would be considering switching this year. But with two major exceptions this is not likely to happen; the possible exceptions being E4 and ITV2. To understand why requires knowing how the British television advertising market works, and that's far from easy.

Buying and selling television advertising in Britain has always been a black art which both buyers and sellers have made ridiculously complicated. Trying to understand it, let alone explain it to others, has always been difficult. Years ago when I worked for the long-departed TVS - the ITV franchisee for the South of England - it was always impossible to explain why we did so well in advertising revenue given that we had the lowest ratings on the network. Nobody believed us when we told them that the lower your ratings the higher your advertising income. It was all about being the ITV franchisee in a comparatively rich area where people disproportionately watched the BBC and, as a result, saw fewer adverts on television. It was classic supply-and-demand economics with demand for eyeballs who watched advertiser-funded television outstripping the supply.

When I was director general of the BBC, I always doubted whether Charles Allen, ITV's chief executive, fully understood the system when he kept complaining about the BBC's share of viewing going up compared with ITV's. These days ITV is losing audience share to other commercial channels. What Charles has discovered is that that is a far worse story for ITV than losing share to the BBC, which of course carries no ads.

What is certain is that for a minority channel, increasing your ratings by 50 per cent doesn't necessarily mean your revenue goes up by the same amount, and that's the problem many small channels would face if they switched to becoming "free to air". Logically, increasing the number of homes receiving a channel by nearly 60 per cent should mean increasing your revenue by the same sort of amount, but the advertising market doesn't work like that.

First of all, the people buying Freeview boxes tend to be older and less attractive to advertisers, but the real issue is that the advertising market is about clout, which is why the big boys can charge so much more for their ads than those without size or a unique selling proposition. It's why ITV and Channel 4 sell at such a large premium compared to Five, UK Gold or Sky One.

This explains why only two channels are even considering giving up being pay channels and becoming funded by advertising only - ITV2 and E4. The reason they might do it is that both are linked to bigger channels and sold by sales forces with real clout in the advertising market place.

Eight weeks ago ITV postponed taking the crucial decision of whether or not to follow the lead set by the BBC 18 months ago and take all its services unencrypted and away from the BSkyB system, but it now looks like ITV is going to do it. Its complaint last week to Ofcom that BSkyB was trying to overcharge it for the same regionalisation service the BBC uses suggests it is ready to bite the bullet. If it does, then ITV2 will almost inevitably become a free-to-air channel just as the recently launched ITV3 already is. If this happens BSkyB's basic package will look increasingly flimsy.

Why is Germaine sleeping with 'Big Brother'?

I am not a great fan of Big Brother, although I must admit my kids still watch it. I enjoyed the first series but year by year feel it has got increasingly seedy in a desperate effort to maintain viewers' interest. By complete chance I watched the fight on the last series, which I felt was manipulative television at its very worst. So I was surprised to read in the Daily Star last week that I had been lined up as a possible contestant for Celebrity Big Brother. When the article was drawn to my attention - I am not a regular Star reader - my first thought was how desperate are the producers if they are having to get down to my level? But as I knew I hadn't been approached, I quickly dismissed the article as something made up by the Star, not an unknown occurrence I'm sure. However, it did get me thinking; who in their right mind would want to be a contestant? I can't think of anything I would like to do less. Why would anyone want to suffer such ritual humiliation? I admire Germaine Greer for taking part to raise money for her rainforest, but rather her than me.