Blurred picture for TV partners

THE future of ITV Digital is a long-running soap that hangs over the Carlton and Granada share price like one of those endless Mike Baldwin storylines on Coronation Street.

New figures this week are expected to show that subscriber numbers at ITV Digital are growing more robust. Subscribers will be up to 1.2m from the present 1.135m. Loss of customers ('churn rate') will fall and average revenue per user will rise.

There are high hopes for the Government's digital action plan, which will increase digital TV's coverage from 50% to 70% to 80% of the country. A ruling from the OFT, which orders rival Sky to end predatory pricing, could also help.

All this is positive, but not necessarily encouraging enough to support further high investment in a multi-channel pay-digital service at a time when the finances of both the owners are under pressure.

Carlton is having a torrid time, its shares diving from 670p last December to just 192p. Granada's price has skidded from 223p to 135p. It is protected by its production companies, which earn around 20% of its revenue.

You know that the market is really worried when shares of ITV Digital owners rally, as they have recently, on hopes that a decision will be taken to rid the investors of the drain on their finances caused by the direct digital model. It is estimated in the City that Granada and Carlton could save £750m of costs if they closed ITV Digital and sold on the subscriptions to someone else.

Granada and Carlton would be delighted if they could find a friendly partner to take on some of the investment load. But none of those generally mooted, including BT, NTL or German broadcaster RTL, want to bore a hole in their cash flow at present.

What are the other options? The one most appealing to ITV Digital is to turn the service into a kind of closed fund, putting a freeze on all new activities and allowing marginal channels to wither. This would keep the network in place and allow it to build up to the break-even level of 1.7m subscribers as a lower-cost operation. It could then be augmented or sold on, when the media markets return to some kind of normality.

There is also the more tricky political possibility of merging ITV Digital subscribers with those at BSkyB, in much the same way as the original satellite broadcasters came together. Labour would think very carefully about giving Rupert Murdoch additional media power in Britain by handing over the direct digital TV delivery system. It would need to trade off the political fallout with the Government's desire to speed up the digital revolution.

The markets are demanding some sort of resolution. ITV Digital is looking to limit its cash out-flow for the time being, while its owners sit tight waiting for subscriber growth, an advertising upturn and the go-ahead for a single ITV. Value may yet be restored. But that requires patience and there is little of it around in present difficult times.

ICI looks backwards

THE earlier-than-expected departure of Charles Miller Smith, 62, from the chair of ICI and his replacement by Lord Trotman, 68, does not exactly signal a youth policy. As the first ICI chairman in recent history not to receive a knighthood, perhaps Miller Smith felt he had to make way for a Lord, even an American one!

Even more curiously, former Ford boss Trotman plans to base himself in the United States, rather than London. This would have been unthinkable in the days when the Imperial Chemical Company ruled the waves from its headquarters in Millbank. Those times are long gone. ICI is no longer a bulk industrial chemical group, dependent on the long chemical cycle, but a speciality chemicals and coverings group closer to the consumer end of the market.

This has made it extremely vulnerable to the American slowdown, made worse by the September 11 attacks. With the latest US leading indicator pointing sharply downwards by 0.5%, and recession spreading from manufacturing to services, Trotman has a tricky task ahead.

Debt at £3bn remains far too high at a time when the whole company is valued at just £2.3bn. Expectations that debt levels could be lowered substantially have been dashed by the difficulty in selling its remaining 30% stake in Huntsman International, the remains of its bulk chemical operation.

The market is plainly unimpressed by the reshuffle and marked the shares down sharply. There is no conviction that Trotman is the leader to see ICI through its trials.