Why the Three Egos are zooming in on ITV

Published on Thursday 23 November 2006 01:51

THE best television soap these days isn't actually on television. It's the amazing slug-fest between the giants of the broadcasting world to buy ITV, Britain's main commercial free-to-air channel.

We have the Three Egos, Rupert Murdoch, (Sir) Richard Branson and Greg Dyke, ex-head of the BBC, each seeking to control what comes through the box in your living room. Not to mention the involvement of the mysterious Bertelsmann, Europe's biggest media company.

Frankly, not many viewers know or care who has control of ITV as long as it shows what they want. Who, for instance, knows that Channel 5 is owned by the aforementioned Bertelsmann group? This is a German company, privately owned by one Reinhard Mohn and his family trust. Herr Mohn, as a Luftwaffe lieutenant, had the good fortune to be captured by the Americans in North Africa in 1943. Transferred to a prisoner of war camp in Kansas, he rapidly acquired a command of English and business studies.

From these beginnings, Mohn has transformed his family printing business into Europe's biggest broadcaster and, arguably, the world's largest publisher. If you read The Da Vinci Code, then Mohn owns it. If you watch The Bill, Neighbours, The X Factor or Pop Idol, then one of Mohn's companies made it. His flagship RTL has also entered the bidding frenzy for ITV, and probably has deeper pockets than the other contenders.

Why this insane global interest in ITV? After all, the UK's main commercial broadcaster is hardly in a sound condition. ITV once had a monopoly stranglehold over British television and the lucrative advertising that went with it. In the words of the great Lord Thomson, owning the ITV franchise was a licence to print money.

But ITV has fallen on hard times. The cosy set-up that guaranteed the ITV monopoly bred a complacent management. This was compounded by the daft idea (propagated by frightened British politicians) that ITV had to be split into warring, regional fiefdoms such as Granada and Scottish Television. As a result, ITV was never in a position to use its commercial clout to become another Bertelsmann. Apart from the BBC, the Brits have conspicuously failed to create a global media brand of any importance.

This rotten inner core to ITV was exposed when the digital technology revolution arrived in the Nineties. The company had neither the wit nor resources to handle the transition to digital broadcasting - ITV Digital lost billions after it failed to give potential viewers either the customer service or programming they wanted. ITV imploded as its audience migrated to Murdoch's Sky channels and a more populist BBC headed by Greg Dyke.

The coup de grce has been the loss of advertising revenues to the internet, leaving ITV an obsolescent business model on the verge of extinction once the analogue channels are finally switched off in 2012. The shareholders are so traumatised that in August they forced the resignation of the chief executive, Charles Allen. ITV has remained rudderless since then and ripe for picking off.

Which doesn't quite explain why Murdoch, Branson, Dyke and Mohn want to fork out at least 5 billion in hard cash for a battered ITV.

First, ITV can funnel a lot of captive viewers through to other products on offer from today's multi-media companies. Thus, the pure advertising model is replaced with selling digital services to the consumer. On a good night, ITV1 still grabs more than 50 per cent of the viewing public to watch Coronation Street. That's a lot of bums on seats.

THIS attracts the American cable company NTL - soon to be christened Virgin Media, because Richard Branson owns 11 per cent of the shares. Branson wants to persuade ITV viewers to purchase NTL's mobile phone and broadband services as a package. The downside is that NTL is offering only 105p per ITV share, which is considerably less than the 130p that Greg Dyke offered back in April. As far as the viewer is concerned, NTL and Branson are less interested in programming than technology. Dyke, for whom running ITV would be a last hurrah, is a better bet.

The next reason ITV is in play is that a state-owned BBC will not be with us forever. No-one expects the licence fee to last another decade, in which case the Beeb will have to survive without its 3-billion-a-year subsidy. The only game in town then will be subscription television. Murdoch's Sky (already subscription-based) wants to be around when that endgame comes. So, on Friday, he bought just enough of ITV to block Branson's bid, leaving Sky in a face-off with the Beeb. It remains to be seen if the regulator, Ofcom, will let this stand, but Murdoch's intervention could force the ITV board to come to its senses and actually manage the company.

The third reason for the bidding war is that ITV has around 1 billion a year to spend on new programmes - few networks anywhere have that sort of budget. Here is where Bertelsmann has an interest. ITV would be a great source of programming for its global networks and an outlet for RTL's existing fare. And with broadband spreading like wildfire, viewers will soon be buying and downloading individual shows. Whoever controls content, like ITV, controls everything.

The sad thing in all this is that ITV is now the hunted rather than the hunter. The only remaining chance of creating a British Bertelsmann is if the BBC can turn itself into a global commercial brand. The lesson of ITV is: eat or be eaten.