Granada media arm stretches out to grasp satellite potential

George Pitcher is joint managing director of media consultancy Luther Pendragon. Granada, equipped with its trendy new media division and Sky deal, is following the smart money into digital satellite.

Appending the word “media” to your company name is likely to become the thing to do as we approach the millennium. In this regard, it is curious that the normally conservative Lord Stevens should find himself in the vanguard of radical corporate developments – it was he who endowed boring old United Newspapers with the exciting new soubriquet United News & Media.

Now Granada, fresh from shelling out nearly 4bn for classless caterer Forte, has followed suit and restructured itself with the creation of a shiny new division called Granada Media. There is one fairly obvious implication that arises from this and one rather less so.

The obvious one is that Granada, far from playing the conglomerate game that we suspected of it during and after the Forte exercise, is actually about to follow the fad for demerger and spin off its television interests. Granada, for fairly urgent valuation reasons if for nothing else, plays down this interpretation, claiming that the new division is a prelude to global expansion in television interests, particularly through global alliances.

There is the merit of truth in this argument. Granada is self-evidently seeking international alliances through deals such as the one it has struck with BSkyB – Granada Sky Broadcasting is due to launch eight non-terrestrial stations in the autumn. This would seem to suggest that Granada is more interested in the potential for cross-border broadcasting by satellite than it is in simply developing its domestic franchises.

This view is further supported by Granada’s apparent coolness towards its 20 per cent stake in Yorkshire Tyne Tees Television. Last week, Granada passed up the opportunity to exercise warrants in YTTV that would have raised its stake by a little more than three per cent (if the interest held by Allquiet Investments, its joint-venture investment vehicle with merchant bank Lazards is included). There was a time, not so long ago, when YTTV was cited as a takeover target for Granada. Were that so, Granada would have been unlikely to pass up an opportunity to build a predatory stake – the next warrants opportunity doesn’t come until the end of September.

Anyway, if Granada is to turn its attentions seriously to international developments, then it is as well that its media interests exist as a discrete entity. In Granada Media we find not only the Granada Sky Broadcasting stake, along with LWT and the YTTV interest, but also airtime sales house Laser, 20 per cent of ITN, 50 per cent of London News Network and 11 per cent of BSkyB.

This is potent stuff, but it is largely domestic. Under the intelligent stewardship of chief executive Duncan Lewis, formerly of Mercury Communications, it is likely to develop international connections. And, yes, I suppose it could demerge. We’ll have to watch that.

But the less obvious implication, to my mind, arises from that deal with BSkyB, which produced the Granada Sky Broadcasting entity, in which Granada holds a 60 per cent stake. I have reason to believe that in this area of Granada’s current media activity it is being particularly far-sighted.

The recent history of media development in the UK would record that cable is corporately where the action is. The likes of Videotron and General Cable have been pleased to make excited noises about the potential for the UK cable market. The trouble has been, irrespective of any considerations of how the UK might differ in developmental terms from the US cable experience, that the marketing opportunity for cable in this country has been largely squandered.It would be difficult to spot a better case history for marketing ineptitude than that for British cable provision. By any standards, therefore, penetration of cable in the short term can be expected to be at the lower ends of projections.

Clearly, that offers an opportunity to satellite operators, which is enhanced by the somewhat somnolent progress of digital broadcast provision at terrestrial level.

I also have it on good authority that national heritage secretary Virginia Bottomley has been advised to back off fulsome support for digital terrestrial television. It could be just another political association with a loser. Well, perhaps that’s a bit strong – but who wants to come second in the vanguard media?

The smart money is moving away from digital terrestrial to digital satellite and there will be spectacular winnings for the operator that has a system running first. That could be the real driver behind both Granada’s desire to strike a deal with BSkyB and its decision to vest its media interests in a separate entity, presumably capable of independent capital funding and development.

Lewis is unlikely to have turned down the opportunities presented by developments at Cable & Wireless, where he was tipped for the top despite strategy disagreements with James Ross, then chief executive, if he didn’t think there were grand strategies to be developed elsewhere. Granada may have given him such a strategy in the shape of digital satellite broadcasting.

It is a long game, maybe one that Granada should be congratulated for. For once a FTSE stock seems to be taking a long view.

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