British TV sector to lose 600 jobs

ITV, Five facing extensive redundancies

LONDON -- In what promises to be one of the bleakest weeks British television has endured, leading commercial broadcasters are expected to announce 600 job losses.

ITV is expected to announce about 500 layoffs Wednesday when it unveils disastrous advertising-revenue declines as part of its full-year results.

Later in the week, commercial rival Five, part of the RTL Group, is expected to announce that it is slashing its 350-person work force by 100 as new chief executive Dawn Airey announces results of the Boston Consulting Group's strategy review.

Meanwhile, publicly owned broadcaster Channel 4 is examining merger options with British Telecom as a means of resolving an annual funding gap it predicts will be about 100 million pounds ($140.4 million) by 2010.

As ITV management confronts a possible 15%-20% dip in year-to-year ad revenue -- an annual loss of about 300 million pounds ($421 million) -- executive chairman Michael Grade will be under pressure to stabilize the broadcaster's financial position. He is expected to announce options that include cutting jobs, slashing the company's dividend, paring its 1 billion pounds ($1.4 billion) annual programming budget and accelerating noncore disposal possibilities still on the books.

In addition, ITV has sizable bond payments due on its debt that likely will force the sale of revenue-generating assets like digital terrestrial-channels business SDN, which could raise about 200 million pounds ($280.8 million), or further dilute the broadcaster's share price by announcing a rights issue.

ITV, which employs more than 4,500, announced 1,000 job losses at the end of last year, and insiders fear the extent of further cuts.

"You can't run a creative business that relies on people if everything is being cut," one production executive said. "It just saps morale."

In an indication of how dire the scenario has become, Grade last week floated the possibility of a three-way merger of ITV, Five and Channel 4 to buttress the U.K. commercial TV market.

The suggestion, when leaked, stunned the heads of Channel 4 and Five, who had not been consulted. A three-way merger seems unlikely, in any case, because it would require anti-trust regulators to tear up the rulebook on U.K. competition.

Analysts have warned that ITV could be forced into a firesale of profitable businesses, which would damage its prospects of organic growth.

"We expect full-year results to trigger substantial downgrades," UBS Investment Research analyst Daniel Kerven said. "ITV is under pressure to cut costs (and) sell assets, given its balance sheet, although this could damage the business longer-term. We expect ITV to suspend its dividend and believe a rights issue would allow it to pay down its pension deficit and emerge stronger from the slowdown."