Bad news for Grade and ITV as the cash dries up

AT A quarter-past seven one Thursday evening in late September 1955, the lines flickering across London television sets tuned to channel 9 began to change into solid forms.

The Guildhall appeared on the screens of the small, bulky, wooden-framed sets nestling with post-war pride in the corners of living-rooms – and, with the overture of In London Town, Independent Television was born.

Almost an hour later the Variety show went to a "natural break" and, for the first time in a country until then monopolised by the British Broadcasting Corporation, commercial adverts were shown.

The first advert – for Gibbs SR toothpaste – was, as the media mogul Roy Thomson would later say, the start of "a licence to print money".

Not any more.

In today's digital era, it seems everyone has a licence – from home-shopping channels to channels which show nothing but music videos – and the value is decreasing rapidly.

ITV, the original commercial public service broadcaster, has found that the platform on which it once stood alone by virtue of legislation is suddenly very crowded. And, rather than standing head and shoulders above the rest, it is being dragged down by the bureaucracy of the Communications Act, which wraps it up, in the words of chief executive Michael Grade, "in nanny state regulations".

Announcing a massive fall in profits yesterday, he warned the regulator Ofcom that, while the channel wanted to continue producing public service programming, it might not be financially viable for long, as advertising revenue went through the floor.

Revealing a 28 per cent fall, Mr Grade said: "I think we have a future as a public service broadcaster, provided that we can get Ofcom and the government to realise very, very quickly that we cannot afford to pay more than the licence and the PSB status is worth. Ofcom estimates that to be around £45 million a year. It's costing us over £220 million a year."

Brian McNair, professor of journalism and communications at Strathclyde University, said: "In the analogue era, when there was a lot less competition, ITV was able to make a lot of money by things like Coronation Street going out to 15 million people and generating a big chunk of advertising revenue. It would then subsidise more minority-audience current affairs programmes which were not huge audience-grabbers. But that was the deal. Now that cash source is declining, because there are far more channels competing for advertising revenues."

David Wood, the acting deputy editor of Broadcast magazine, the industry bible, said it was "up to ITV" to decide whether it had a future as a public service broadcaster. "It is a commercial broadcaster and it has shareholders and it has to present a commercial front," he said. "It is not saying we do not want to provide regional news; it is just saying we need a big reduction in what we pay the government for our licence, or some government funding for our programming. I think what they are going to do is wind down the amount of programming they do on the public service side."

Things are going to get a lot worse. In 2012 the analogue signal will be switched off, placing channels 1 to 5 on an equal digital footing to the few thousand channels likely to exist by that stage.

Prof McNair said: "Everyone agrees that there will not be enough advertising revenue to sustain ITV in its current business model, so the question is, do we want or need another public broadcasting channel?

"I think news is where people are most concerned. One of the motivations for setting up ITV was pluralism. It's not healthy to have one news broadcaster, and it could not be left to the BBC."

The corporation, to some degree, stands aloof from the dirty corporate world. By virtue of its funding from licence fees, it is free from the demands of advertisers and shareholders. But some of its money may be prised from its clutches, with Ofcom consulting on future funding of broadcasting.

Prof McNair said: "Ofcom does not want ITV to just go away. It wants to preserve pluralism. I think there will be some transfer of public funds from the BBC."

It is not clear how a move by ITV to disengage from public service broadcasting would affect the firms which operate licences north of the Border.

In most of Scotland, channel 3 is the responsibility of STV – split into north and central licences – issued separately from ITV.

It contracts with ITV for main programming, then reverts to the regions for local news and other programming.

A spokeswoman for STV said: "Any decision that ITV makes on their licence is a matter for them ."

Charles Fletcher, the director-general of Caledonia Media, an international media development company, said: "I think STV is going from strength to strength under Rob Woodward, who has had the courage to step forward and return STV to its core function as a programme-maker.

"I'd very much like to encourage that future so we get more and more programmes made locally, either by STV itself, or perhaps more broadly through independent production companies. I think it stands head and shoulders above the rest of the network."

But he added: "ITV needs to stop whingeing about public service broadcasting. It was always part of the remit."