The chief executive of the main commercial television company in the United Kingdom says the industry is beginning a second digital switchover, with the convergence of television and the internet through connected devices like YouView, Google TV and Apple TV. “Part one of the digital switchover is coming to an end,” Adam Crozier told a conference Barcelona, organised by investment firm Morgan Stanley. “Actually part two, in many ways, is things like YouView, Google TV and Apple TV. The internet and the television, after much talk and a bit of cry wolf, are actually now starting to come together.”
The head of ITV said that platforms like YouView will enable free-to-air broadcasters to offer an alternative to subscription television services. “It moves it on to an à la carte menu, which is where people can have the majority of their television free and then pay for the things they want,” he said. “For pay platforms that’s quite difficult — the model there is to get people to pay for things you don’t really want to get the things you do.”
He said that ITV, which has “suffered from the lack of investment” in its web site, is planning to create a new micropayments system and to sell its programming across a wider range of platforms to reduce its dependency on advertising revenues.
The new managing director of ITV.com has his work cut out. Robin Pembrooke previously worked with Fru Hazlitt, the managing director of commercial and online, at the radio group GCap Media.
The ITV web site has seen a 6% decline in online video viewing over the last year, with an average of 15.6 million monthly views, although visitors to the site are up 13% to 9 million a month.
That compares unfavourably to the BBC iPlayer, which receives 84.1 million online video requests a month, a 57% increase over the year. In addition, it generates around 24 million video views a month on the Virgin Media cable television platform, available in 3.7 million homes.
The previous executive chairman of ITV, Sir Michael Grade, who has now been made a life peer in the House of Lords, had set a target of £150 million for online revenues by the end of 2010. That target was later extended to 2012 and then abandoned.
In the first six months of 2010, online operations at ITV generated just £12 million in revenue, up marginally on £10 million for the same period the previous year. At those levels it seems unlikely that online video is contributing any profit to the bottom line at ITV, which last year made a profit before tax of just £25 million, on a turnover of £1.9 billion.
ITV is pinning its hopes on YouView, a decade after its last disastrous experience with its digital television platform, which ended with ITV Digital in administration and the emergence of Freeview.
The question is whether ITV will see significant benefits from YouView, the joint venture platform partnership with the BBC, Channel Four, Five, BT, TalkTalk and Arqiva, which it now hopes will become the successor to Freeview.
Even by the most optimistic projections, YouView could take years to reach a few million homes. Whether ITV programming will generate significant revenue through micropayments is open to question, particularly since YouView boxes will include a twin-tuner digital video recorder that will allow users to store and watch hours of programming for free.
The real challenge for YouView and other connected television devices and displays will be that they will facilitate viewing of online programming from other sources, further eroding the share of viewing for the main channels.
Much of the most popular programming on ITV is either live event based entertainment or soap opera serial drama, both of which have limited shelf life.
In a surprisingly candid moment, the chief executive of ITV, who previously ran the Royal Mail, recently told the Lords communications committee that ITV was stuck in a “ratings rat race” with a schedule that had a “remarkable lack of diversity”.
That indicates the importance of investment in programmes for which people will be prepared to pay. The surprise ITV hit of this season has been the period drama Downton Abbey, or Downturn Abbey has it has been dubbed by some.
In tough economic times, investment in programming will be critical to the success of ITV, by whatever means it is delivered.