Three Cs in closure for U.K.'s DTT.

Five years ago, when Granada and Carlton launched the world's first digital terrestrial television (DTT) pay platform, called ITV Digital, it probably seemed like a good idea. By April 2002, having seen $1.25 billion ([pounds sterling]800 million) of investment generate a subscriber base of just 1.2 million, with a meager 25 percent churn rate, the two giants of U.K. commercial broadcasting withheld payments totaling $278 million ([pounds sterling]l78 million) to the Nationwide Football League, and sought the protection of the courts. (On August 1, the High Court threw out the League's claim, causing the August 6 resignation of the League's chairman and chief executive).

But what went wrong? Charles Allen, Granada Media's executive chairman, blamed "the 3 Cs: competition, coverage and content." Doubtless, it is little comfort to him that expert commentators agree unanimously with this assessment.

BSkyB provided the fatal competition. Doubly irritating was the fact that when OnDigital (as ITV Digital was originally called) was launched in 1997, BSkyB was a founding member. The ITC (the body that awards commercial broadcast licenses in the U.K.), acting on advice from the European Commission's Competition Directorate that BSkyB's inclusion would breach E.U. competition law, forced the satellite operator out. At the stroke of a bureaucratic pen, a powerful ally became a powerful enemy.

Katherine Grimme, senior analyst at Ovum Digital Media, accepted that, "from a commercial perspective, this was a major blow." But she defended the ITC, pointing out that "the presence of BSkyB would have given the consortium continuing regulatory problems, including restrictions on the channels they could run and the basis on which they would have had to deal with the cable companies."

Rebecca Ulph, senior analyst at research house Forrester, agreed that there would have been problems, but added, "BSkyB's decision to give away their set-top boxes for free hurt ITV Digital very, very badly, and I doubt BSkyB would have done this if they had remained in the consortium.

David Fletcher, head of research at ad agency Mediaedgecia, said that no matter how substantial the regulatory problems might have been, head-to-head competition with Sky was always a fatally flawed proposition. Said Fletcher: "Our research shows there were two potential markets for digital. The classic early adopter, who, by definition, already had Sky analog, and for whom therefore the move to Sky Digital was a 'no-brainer', and what we call 'the grudge purchase.' People in this second category are buying under duress, usually because they want the sport that has migrated from free terrestrial to digital, or under duress from their kids. In neither case would ITV digital meet their needs." "In the end," added Fletcher, "ITV was a content organization getting into the distribution business, and they didn't really know how to knit the two together."

That final comment drips with tragic irony, because the headline act in ITV Digital's content offering was Nationwide football: a league of clubs not good enough to compete in the top-draw Premiership, which was, you guessed it, on Sky. But not only was Premiership football on Sky, all the other top sporting events, with the exception of Formula 1 (then, as now, held by ITV, who wouldn't share it with ITV Digital) were, too. Additionally, BSkyB had all the top Hollywood movies, which raises the question, if the best of the rest wasn't good enough to sustain a pay platform, what could they have spent the $491 million ([pounds sterling]315 million) committed to Nationwide football on?

Fletcher is unambiguous: "They should have left well-enough alone."

Grimme takes a more sanguine view. In her opinion "ITV Digital should have focused on providing things that were not available on Sky, such as specialist niche channels, local content and enhanced interactive services."

Ulph sees merit in both views: "They shouldn't have spent the money at all. Instead, they should have marketed the key features of DTT -- no dish and interactive. There are many residences in the U.K. that are, for many reasons, prohibited from erecting a dish, and many interactive applications, especially betting on live sport, have proved to be a big hit and would have acted as a draw."

But whatever the merits of these arguments, there would still have been the final "c" in ITV Digital's closure coverage. ITV Digital carried 36 channels (the new BBC-led consortium -- with BSkyB -- is only proposing to carry 24), and the resulting interference led to desperately poor reception with pixilating images. And that was the good news. In addition, only about 66 percent of U.K. households could receive the service and, of these, some couldn't receive all of the channels on offer. If this sounds like an unsound basis on which to run a business, Ian Jenkins of respected analyst Logica would agree. In a report for the ITC, published May 31, he stated, "the coverage figures were not derived on the basis of commercial viability, but as a consequence of the international agreement by the frequency planners."

In conclusion then, ITV Digital failed because few subscribers valued its content (and of those who did, some couldn't get it anyway), and because it chose to go head-to-head with a well-established rival with deeper pockets and stronger content.