Bad news for ITN as Five looks to the Sky

For years ITN has fought off attempts by BSkyB to get its hands on one of three contracts to supply news content to commercial terrestrial players ITV, Channel 4 and Five.

But last week it had to admit defeat when Sky News won the pitch to supply Five with a news service from the beginning of next year. The loss of the contract – worth just less than &£40m over five years – represents a severe dent in ITN’s &£100m turnover, which it will find difficult to replace.

But ITN chief executive Mark Wood says: “We were not prepared to continue to do the business at a loss.” He doubts whether Sky News will be able to deliver a similar quality of product and service and make a profit if it continues to employ the same number of people that ITN does on the business. But BSkyB maintains that the contract is commercially attractive.

BSkyB’s win of the news contract comes a week after the departure of Five deputy chief executive Nick Milligan to go to the satellite broadcaster as managing director of Sky Media, overseeing the sale of airtime (MW last week). He will be reunited with former Five chief executive Dawn Airey, who is now managing director of Sky Networks.

Speculation about closer ties between the two broadcasters has been rife since last year’s Communications Act opened the way for Rupert Murdoch’s News Corporation, which owns a 35.4 per cent stake in BSkyB, to make a bid for Five. Discussions have taken place between Five and BSkyB about pooling their on-air sales operations following the merger of Carlton Communications and Granada, although more recent speculation has focused on Five teaming up with Channel 4 (MW last week).

With regard to news, BSkyB first got its foot in the door at Five in 2002 when it began supplying Sky News Sunrise, an early morning show broadcast each weekday. In addition, Sky News will now provide Five’s lunchtime and evening bulletins. Kirsty Young will continue to present the flagship evening bulletins. One of the factors that is thought to have swayed the decision in favour of Sky was the degree of access that will be given to its well-known reporters around the world who will file reports signing off for Five.

Viewing figures would also no doubt have had some bearing on the decision to award the news contract to Sky. Starcom MediaVest executive buying director Matt Blackborn says: “Part of the reason for Five changing its supplier could be the fall in audience in the past couple of years in the 7.30pm slot.” He claims adult viewing has dropped to an average of half a million for the 7.30pm slot from 600,000 a couple of years ago.

ITN, which has held the Five contract since the channel’s launch in 1997, had reportedly come close to losing it to BSkyB in 1999, but Five’s then chairman Greg Dyke is believed to have blocked the move due to concerns about the influence Murdoch would hold over the station.

ITN will now be under increasing pressure to retain the Channel 4 and ITV contracts, which come up for review in 2006 and 2008 respectively. While ITN has helped the former to deliver a consistent upmarket adult audience for what is widely considered to be a highly acclaimed, in-depth and distinctive news output, Channel 4 may have concerns that its news provider could be subsumed into ITV, an issue that is also thought to have troubled Five.

ITV holds a 40 per cent stake in ITN with the Daily Mail & General Trust, United Business Media and Reuters each holding 20 per cent. ITN was originally founded in 1955 as an independent organisation owned by ITV companies producing news for broadcast on ITV. But its current diverse ownership could restrict investment in the company, especially when the likes of UBM no longer has TV as part of its core operations.

A UBM spokesman admits: “It’s not part of our operating divisions. We have a number of interests that aren’t and we may look to exit from these positions, but only at the right time. There is no urgency in disposing of these.”

ITN’s Wood successfully campaigned during the passage of the Communications Act to remove a cap on share of ownership in ITN, paving the way for a single owner. ITN management believe that the change will help boost investment in the company and preserve its position as a strong competitor in the production of broadcast news.

Analysts believe ITV will take advantage of the change in the law and attempt to gain control of ITN. Paul Richards at Numis says: “I think it’s an inevitability. If ITV were starting with a blank sheet of paper it would have its own internal news operation like the BBC.”

Teather & Greenwood’s Jonathan Barrett says: “I would have thought a business of ITV’s size would want control and it’s a similar process to the one of ITV’s consolidation as a whole.”

ITV has already wrestled control of ITN’s 24-hour news channel and rebranded it ITV News Channel, but the channel lags some distance behind rivals Sky News and BBC News 24 in terms of average adult viewing.

Blackborn says: “There has been much made by ITV of competing in a multi-channel world and I suspect they feel the need to be in more genres, therefore I think ITV will continue to support it even though it is not performing as well as Sky News.”

The ITV contract is now worth about &£35m a year to ITN, which managed to hold on to the business after a competitive review in 2001, in which a Sky-led consortium submitted a bid. There was talk then that ITN had been forced todrop its price from &£45m and had benefited from the support of Carlton and Granada, which each had a 20 per cent stake in the company.

But ITV must be pleased with the current performance of its main evening news, which has been relaunched and moved to a permanent 10.30pm slot, jettisoning the “news at when” tag.

According to Blackborn, adult viewing has increased from an average of 3.2 million to 3.45 million in its current slot, “benefiting from avoiding the BBC News” despite being shown later at night.

Given ITN’s ownership structure, ITV is unlikely to award its news contract elsewhere unless it can make huge savings by doing so.

ITN also does more than supply news to UK broadcasters, a service, incidentally, which includes providing bulletins for the 260 commercial radio stations through Independent Radio News. It has a factual and documentary programme-making division, develops new media services for mobile companies, syndicates coverage to overseas broadcasters and controls an extensive commercial news archive, which together account for more than 20 per cent of ITN’s turnover. Although total income from these businesses is growing, it still has a long way to go if it is to fill the hole left by the Five contract.

What the future holds for ITN is debatable, but it is certain that it will fight hard not to let the Channel 4 and even the ITV news contract go the same way as Five’s.