Into the firing line 

18 March 2003 tbs.pm/2172

Broadcasting is something that everybody has something to do with at one time or another. If you’re not in it, you’re either watching or listening to it. Not surprisingly, everyone has an opinion about it.

Right now, broadcasters are under the closest scrutiny they have been under in years, with the Communications Bill very definitely in the wings, and a new regulator, OfCom, who’s reach will be far further than any previous broadcasting regulator.

So, just who is in the firing line, and why?

British Broadcasting Corporation (BBC)

Yes, good old Auntie Beeb is in the firing line once again. In truth, it rarely seems to ever be out of it. Some people say that the BBC is too commercial; others say it should go entirely commercial and lose the licence fee, whilst others suggest a smaller licence fee to maintain stations like Radio 3, Radio 4 and BBC Four, and allowing the more mainstream stations to be commercially funded.

The reason it is under scrutiny now is that the debate has begun in relation to the renewal of the BBC’s Royal Charter in 2006. Debate always begins years before the charter itself is renewed. In some ways, even after the charter has been renewed, the debate never really ends.

The expectation is that the charter will get renewed, and the BBC may get slightly above inflation rises for the fee, but not without giving the government a few concessions. Exactly what those concessions might be remain up in the air.

British Sky Broadcasting (Sky)

Unquestionably the dominant player in Pay-TV since the demise of ITV Digital, Sky is in a position where it can practically dictate which channels survive and which channels don’t. Because Cable TV does not have the reach to even come close to competing with Sky, any channel that isn’t on Sky’s platform is practically doomed. If you need proof of this, just look to Carlton Cinema and The Studio, both of which had not managed to gain access to the platform and have closed.

Sky literally has it all. Some of the most successful channels in the multi-channel arena, the top premium channels, the runaway leader in pay-per-view, the most households of any digital platform in the UK, no-one comes close. Yet, despite all this, 90% of all the revenue Sky makes is from subscriptions. Sky makes far far more money from the platform than they do from all of the channels that Sky own or indeed have a holding in.

Ever since ITV Digital’s demise, there has been talk about breaking up Sky or forcing Rupert Murdoch to sell a part of the Sky empire. One plan has been to relieve Sky of control of the digital satellite platform. However, since 90% of Sky’s revenue comes from the platform, not the channels, you can bet that Sky will resist that idea.

If Sky were to offer to divest any part of their empire, it would be the channels and production facilities at Isleworth. They are not cheap, we are talking about some of the best known, most watched channels in the digital arena, two of which stretch back over 14 years, and one over 20 years. These are pedigree channels, and Sky will be expecting any buyer to pay a pretty, premium, penny for those channels.

However, should they not sell those channels too quickly, the new regulator OfCom might decide to flex some regulatory muscle and either forcibly sell those channels at a much reduced price, or begin the process of divesting Sky’s digital satellite platform from the rest of the company. This will be one situation that will be followed with interest from a lot of different perspectives.

Independent Television (ITV)

This is one situation that is under serious scrutiny right now. Carlton and Granada want to merge their operations into one super ITV company, controlling almost ¾ of the ITV network, and producing almost all of ITV’s programming. Everybody, including Carlton and Granada themselves, is expecting this to go before the Competition Commission (CC).

Now, it wouldn’t surprise me if the CC consulted with the ITC or OfCom on this merger. But it also wouldn’t surprise me if they didn’t.

As I have previously raised in the EMC Magazine, the prospect of this super ITV company failing is a very real one, after what happened with ITV Digital. Now, if the merger were allowed to happen unchanged, it would almost certainly take ITV right out of the picture, which is the exact opposite of what Carlton and Granada want.

What they want is a strong, unified ITV, which can be as strong overseas as the BBC or the US networks are. They claim that a ‘regional’ ITV company cannot have that kind of clout. This conveniently forgets that both ABC/Thames and ATV did have that kind of clout in days gone by. The respective failures of Carlton and Granada to penetrate the US market probably have more to do with the creativity side rather than management or anything other possible factor.

The merger isn’t without its fans, but these are few and far between, even in the corporate-orientated world of the City. There have been reports and rumours that major shareholders of both Carlton and Granada are not over-happy with this deal, and are looking to make changes to it already. Nobody expects this deal to go through unscathed, and there are various ideas already being floated around, about what could be sold off pre-merger.

My main worry is that a combined Carlton and Granada would own 11 out of the 15 ITV franchises, and some of the franchises seem to be owned merely for the sake of being owned, rather than as part of any serious strategy.

Considering all the problems both Carlton and Granada have had with their other operations in earning revenue, you can imagine that a combined entity might be a little bit tighter when it comes to operations that are not serious revenue earners. Three out of the 11 ITV franchise operations that Carlton and Granada currently own could be put into this category. These operations contribute very little towards the network and that means very little revenue generating opportunities coming from these operations.

Border TV has one of the smallest operations in all of broadcasting, and is the smallest ITV franchise operation. There is little doubt in my mind that Border was only bought by Granada because it could do so to fit in with the rules of the time.

There is no real strategic advantage to it continuing to be owned by a combined Carlton and Granada. Equally, there is little strategic advantage for any other company seeking to own a UK-based broadcaster, except for the fact that it is a way in to ITV. There are no large production facilities at Border, just a small-scale production and broadcasting operation. Still, for any non-UK based broadcasting company, an operation like Border’s is a way in to the UK broadcasting market and a way into ITV.

Westcountry Television’s operation out of Plymouth is similarly small in size, but in its own way is a mini network of its own, with 4 centres capable of producing output, albeit usually for a limited time each week as opt outs, but there is currently little reason why the 3 operations outside of the main Plymouth HQ couldn’t be used for producing programmes as well as news.

Yes, the actual facilities maybe small, but they are only run 5 days a week currently, and only tend to be in any substantial use for a limited time before the lunchtime bulletin and Westcountry Live. This only amounts to half a day, every day usually. With a total of 8 production facilities across the South West, and a number of outside broadcast facilities, all that would really need to be added to the operation to make it completely attractive is a larger studio, or indeed, a second main studio, alongside the main studio and the 8 bulletin studios across the South West. For any potential company looking to get into the ITV market, Westcountry is a pretty nice option.

The HTV operation out of Bristol and Cardiff is another operation that acts as a mini network, this one operating 2 different schedules. Like both the Westcountry and Border operations, it doesn’t seem to drive a lot of potential revenue opportunities and has the added complication that it is saddled with certain requirements from S4C and, by implication at least, the Welsh Assembly. The facilities at both Bristol and Cardiff are fairly substantial, which is quite appealing. However, this is countered by the requirements that are laid down upon it for S4C and for ITV1 Wales.

So what are the futures for these franchises? Well, it is difficult to imagine them remaining comfortably in a single Carlton and Granada merged entity, because none of the licences are massive revenue generators because none of them produce network programming more than once in a while, and with Carlton doing most, if not all of its network production out of London and Nottingham, and Granada doing most of theirs out of London, Manchester and Leeds, with some coming out of Meridian and Anglia, then the Border, Westcountry and HTV licences could well be seen as surplus to requirements and sold, but who too?

Any of them could be sold to concerns that are not currently in ITV1, but that would mean introducing new owners into the ITV1 board and that might not be something that Carlton and Granada really want to do. What I do see happening is Border perhaps being sold to SMG, whilst Westcountry and HTV are combined into one company and spun off from the giant, perhaps with the Carlton/Granada entity maintaining a shareholding.

Summary

Whilst the 3 I have mentioned are most definitely the most closely watched and the most under fire of the media companies right now, attention isn’t entirely focused on them alone.

Channel 4 have been toted for possible privatisation and are unquestionably being watched, both to see if they could survive as a completely commercial entity, on one hand, and on another, are being watched to see how well they stick to their remit that they were given when they began back in 1982.

Channel 5 is starting to move up the ratings and is being seen as a threat to Channel 4 and also to BBC2 in ratings terms. They are being watched to see just how well they do and just how often they threaten the dominance of BBC1 and ITV1 in the ratings.

Flextech are another company who are moving up on the sidelines, this time in the digital TV market. Whilst they don’t have the numbers of channels that others have, what they have are some incredibly strong channel brands, and with the recent arrival of FTN on both Freeview and Sky Digital, and a desire to commission new material exclusively for FTN, they are looking to steal a march on Sky and establish FTN as the next major channel in digital and place it alongside the likes of BBC3, ITV2, E4, and Sky 1.

UKTV has taken a lot of criticism recently from the commercial world about its BBC links and the number of channels it is launching. It must be remembered that no licence fee money goes into UKTV, all the funding coming from the commercial earnings of BBC Worldwide and Flextech. They are being criticised for wanting to launch more new channels. However, if the channels they have now were not successful, they wouldn’t be able to afford to launch more new ones.

Simply Television have managed to pull their fat out of the fire after the failure of Simply Money and have since gone on to launch an ever growing network of channels, one of the latest being Simply Asian. They seem to have funded the non-shopping channels via the home shopping channels they run. They are unquestionably being watched to see if they will continue expanding their channel portfolio and if they do, how long will it be before they start running more mainstream channels again.

This is an interesting time in broadcasting terms, and one worth watching by everybody, even those who’s interest in TV is purely as a viewer. The major players seem to be establishing themselves and we will undoubtedly see a lot more happen, before everything is said and done. Exactly what will happen and when, only time, and business practices, will tell.

A Transdiffusion Presentation

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Ian Beaumont Contact More by me

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