ITV returns to pay TV

Plans HD versions of ITV 2, 3 and 4 as pay channels on Sky

LONDON -- ITV, the biggest free-to-air commercial broadcaster here, is teaming up with U.K. pay TV satcaster BSkyB to launch its own pay channel bouquet.

The commercial web said Tuesday it plans to unleash HD versions of ITV 2, 3 and 4 as pay channels on Sky.

The move is part of ITV's grand "five year transformation plan" unveiled to the stock market here by the web's freshly appointed CEO Adam Crozier. The incoming CEO was also announcing his first set of interim results for the broadcaster.

Crozier said while the 2010 interims were a move in the right direction, the broadcaster is under no illusions that "ITV needs to change substantially."

Crozier said: "For the past decade ITV has not faced up to the challenges presented by the rise of Internet-based platforms, the continuing growth of pay TV and subscription services and the globalization of content."

He said the challenge would be to re-shape and re-organize the entire management, culture and organization over the next five years.

"Our priority for the next 18 months is to make ITV a creatively dynamic and fit for purpose organization while maintaining strict financial controls," Crozier said.

"Over time we expect to move to a position whereby half of ITV's revenue base will be derived from non-television advertising sources and today we are announcing our move into pay television with the agreement to make HD versions of ITV 2, 3 and 4 pay channels on Sky."

Over the past decade ITV has seen its core free-to-air broadcasting empire eroded by changes in technology and through the creation of new content and distribution channels.

ITV pre-tax profits hit £118 million ($188 million) in the first half of 2010 and posted an 18% year-on-year uptick in TV ad revenue. Group revenue rose gently from £909 million ($ 1.4 billion) to £987 million ($1.57 billion) this year.

The broadcaster also boasted of a £75 million ($119 million) investment fund to be funneled over three years into "operating investments online, in content and in our digital channels."

Crozier joined ITV in April this year and immediately warned the entire staff in a memo of that the company faced "tough challenges ahead."

ITV's HD channels aim to become available to Sky+ HD subscribers in the fall, kicking off with ITV2 in October.

ITV forecasts that the recovery in the advertising sector will continue at least through to the end of the third quarter with ad revenues up 15%, but is more downbeat about the prospects further ahead.

"The outlook for the fourth quarter when comparatives become much tougher and into 2011 remains uncertain and we are planning accordingly," ITV said.

The program budget for ITV1 would be kept below £800 million ($1.27 billion) both next year and in 2012, ITV said, reflecting a decrease on 2010's £820 million ($1.3 billion) budget. This year's budget was bolstered for ITV's coverage of the FIFA World Cup soccer tournie.

The broadcaster also claims to have taken "decisive action" on cash and costs, and posted a reduced net debt from £612 million ($973.8 million) at the end of last year to £437 million ($695 million) now.

Earnings before interest, tax and amortization rocketed in the first half from £46 million ($73 million) to £165 million ($262 million) year on year.

The deal with Sky marks the broadcaster's first pay TV venture since the failure in May 2002 of ITV Digital, the digital terrestrial subscription business backed by ITV companies Carlton and Granada.
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