50 Years of Fame: ITV's Extended Digital Family

Marketing, September 21, 2005 | Go to article overview

50 Years of Fame: ITV's Extended Digital Family


A suite of branded digital channels now complements ITV's core terrestrial service, strengthening its offering.

After a difficult debut in the digital marketplace, ITV can now boast a successful family of channels. ITV2, which launched seven years ago, has grown into the most-watched non-terrestrial TV channel in the UK, ahead of its rivals E4 and Sky One. It falls from the top spot only when E4 is boosted by constant coverage of Big Brother during the summer months.

With the pounds 134m purchase of digital terrestrial television multiplex operator SDN from shareholders UBM and S4C Digital Media earlier this summer, ITV now has capacity for at least 10 new channels in the future. And until 2010, it will earn revenue from showing channels such as Disney and QVC.

It was all so different in the dark days of November 1998, when ITV Digital (then known as ONdigital) was launched, six weeks after the appearance of Sky Digital. The ITV platform peaked at 1.2m subscribers in December 2001, but struggled to make an impact and eventually came off air in May 2002, having incurred losses of more than pounds 1bn.

It was a low point in ITV's history. Wrangling with the Football Association over payments for the right to show matches and disagreements with aggrieved ex-employees followed. However, the venture's collapse left ITV managers' desks clear enough to finalise a merger that had been brewing for years and created a single ITV company in England. It also enabled the company to come up with a new, more effective response to the digital TV revolution as a multi-channel powerhouse.

When ITV plc came into being in 2004, its digital portfolio consisted of ITV2, aimed at 16- to 34-year-olds, and the ITV News Channel, launched in 2002. Although the channel has a small audience, it is a strategic news brand for ITV in the multi-channel environment and made headlines recently when it broke the news of a leaked report into the police shooting of an innocent man at a London Tube station.

ITV's strategy of building a number of digital channels, rather than providing a viewing platform, was underlined with the launch of ITV3, which targets older viewers, in November 2004. This November will bring the launch of ITV4, aimed at men, and a children's channel will follow in the next six months.

In the world of digital, the creation of a suite of ITV-branded channels is a must for a mass-market brand because the share of viewing attracted by ITV1 will inevitably decline with audience fragmentation. Anthony de Larrinaga, media analyst for SG Securities, says: 'It is inevitable and essential that ITV exploits additional (digital) capacity with extra channels. ITV2 and ITV3 have been helped by the good performance of Freeview as a platform. Things are a lot better than they would have been had they done nothing at all.'

As with any developing sector, de Larrinaga identifies room for improvement.

'The key is how it executes its strategy. ITV needs to improve its power ratio or share of programme spend against share of viewing.' He suggests the ratio is slipping, but accepts it is too early to gauge the efficiency of the whole digital family.

De Larrinaga believes ITV1 will see a 2% fall in ad revenue this year (others predict a fall of between 3% and 4.5%). The digital channels' revenues are growing at rates of about 70%, but he does not expect that to offset the fall in fortunes of the main channel.

ITV has a more positive outlook, predicting that overall revenues will rise by 3% when ITV2 and ITV3 are taken into account.

Whatever the final balance, few dispute the notion that ITV1's ad revenue will shrink with audiences and that new revenue streams, possibly including subscription, will be needed in future. That is where the digital channels, with their different audiences, come in. 'They will be dragged into the subscription market once they can sustain the additional costs,' predicts de Larrinaga. …

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