In a bravura-filled performance in front of a committee of MPs last week, Telewest Broadband’s ebullient chief executive Adam Singer quipped that it wasn’t a “digital tsar” that the industry needed but a “digital Lenin”. It is not going to happen, but he was right: only a ruthless dictator could cut through the Gordian knots of regulatory and financial upheaval that have turned much of the digital world into a disaster zone.
Last week was a cheerful one only for those who believe the digital glass is half empty – or drained – rather than full. Forget the fact that over 50 per cent of homes now have multi-channel television and around 40 per cent are connected to digital, making digital TV the fastest-growing new technology in entertainment history. Forget that the BBC has just launched BBC4, its third new digital channel in as many weeks, or that the &£99 Pace digital “adapter” is on its way to the shops.
The failure of the previously unannounced merger-talks between Carlton and Granada, the two ITV giants, showed just how serious matters have become. No one had thought that Carlton’s Michael Green and Granada’s Charles Allen would be ready to bury the hatchet anywhere other than in each other’s head. It seems the talks were largely dashed by a last-minute failure to agree on how to stem the flow of red ink from ITV Digital – precisely the problem that led to the talks in the first place. Now there is to be a “financial restructuring”, masterminded by Deloitte & Touche.
Hanging over the discussions is the threat that Carlton and Granada could pull the plug altogether, scuppering the Government’s dream of switching the whole nation to digital transmission by 2010. This, in turn, has inevitably been linked with the continuing financial problems of the two biggest cable companies, NTL and Telewest, whose combined &£17bn debt should have made Carlton and Granada feel positively flushed.
Telewest’s announcement of a &£2bn loss and its decision to write off a billion pounds of goodwill from the Flextech side of its business overshadowed the positive points that Singer prefers to emphasise. “This is the sixth successive quarter [in which] we’ve beaten expectations,” he says. “It’s another record period and the results speak for themselves.” Both Telewest and NTL would be nice little businesses, showing growth and operating profits, were they not saddled with those huge debts.
And though Singer put a brave face on another of last week’s digital developments – BT’s belated decision to step up the pace of broadband delivery – most analysts saw this as yet more bad news for the cable companies. Everyone knows that Telewest and NTL – like Carlton and Granada – should merge, but until the financiers can find a way of restructuring NTL’s debts, such plans must remain on ice.
Singer presented MPs on Gerald Kaufman’s Culture Media and Sport Committee with an inspiring vision of the cornucopia of social benefits that broadband digital services could bring. Broadband links would enable doctors to conduct operations on patients hundreds of miles away, greatly increasing productivity, while many school children would yearn to learn the technological wizardry of the best educational software.
This is also the Government’s vision, but sadly it has been bashed by commercial realities and regulatory rows. After Singer’s appeal to MPs, his place was taken by regulators – the ITC, BSC and the Radio Authority – which explained how life would be under a unified regulatory body, Ofcom.
Unfortunately, it is the regulators – or the regulations they are charged with upholding – that have caused many of the problems the industry now faces.
The reason – personalities aside – that most assumed Carlton and Granada were not yet ready to merge was the knowledge that such a merger would still fall foul of media ownership rules and Competition Commission restrictions. The surprise was that their bankers had found ingenious ways of placing the contentious parts of the joint business out of harm’s way until the rules changed and ITV’s share of the advertising market fell to an acceptable level.
Even so, advertisers and rival channels remain opposed to a single ITV and would have fought the merger tooth and nail – though that line is now softening. (I’ve heard some say that if it’s going to come anyway, better to get it out of the way now, rather than let the uncertainty drag on.)
Where the regulators really damaged the Government’s digital switch-over plans, however, was in vetoing BSkyB’s place on the digital terrestrial platform. Under the original British Digital Broadcasting application, BSkyB would have partnered Carlton and Granada in ONdigital (with the full support and programming of the BBC). The veto meant that Sky Digital and ONdigital had to compete head on, smashing lumps off each other.
But one reason regulators vetoed the plan was because it was opposed by cable companies such as Telewest. This is where the “digital Lenin” could have sorted matters out. He might have sent Singer to the salt mines. But at least everyone would know where they stood.
Torin Douglas is media correspondent for BBC News