ITV to play the pre-pay card

TROUBLED ITV Digital plans to sell mobile phone-style prepay cards offering set amounts of viewing time. The radical scheme is understood to be particularly favoured by Carlton, which jointly owns ITV Digital with Granada. It sees the cards as a crucial part of attempts to revitalise the loss-making service.

The cards could be introduced as early as April, when cheap set-top boxes become available. The boxes will allow viewers to receive free digital channels such as ITV2 and News 24 without paying an annual subscription.

At the same time, ITV and the BBC plan to create a coalition of TV companies to supply free channels to extend the choice and quality of free digital viewing.

ITV hopes that when the coalition is set up, viewers with the cheap boxes will be tempted to upgrade to ITV Digital, the only service that supplies digital TV through aerials.

Meanwhile, the BBC must ensure that more viewers have access to digital TV to fend off criticism that it is spending £150m on digital channels that cannot be seen by most licence fee-payers.

ITV Digital's pre-pay scheme would differ from pay-per-view, which is offered to subscribers for individual sporting events. With pre-pay, viewers would buy set amounts of airtime for a range of channels. Crucially, they would not have to pay a subscription. A spokesman for Carlton said: 'When the costs of set-top boxes are reduced, we can be much more flexible. We ought to be able to offer a pick 'n' mix of channels, and in the same way that Vodafone, say, offers a £25 phone card, we will sell pre-pay cards that allow customers to view a couple of hours of UK Gold, for instance.'

ITV Digital has battled with Rupert Murdoch's BSkyB satellite service with both offering free set-top boxes - a key reason why ITV Digital has lost £800m on its business so far. Last week it axed 600 jobs to cut costs.

ITV Digital attracted 46,000 new subscribers in the three months to Christmas, but BSkyB far outstripped it with 218,000 signings.

ITV Digital's 'churn' rate - the number of customers who do not renew subscriptions - is nearly 25%, which means that it loses a quarter of its customers every year. BSkyB's rate is just 11%.

ITV Digital has spent nearly £6m on an advertising campaign featuring comedian Johnny Vegas and a toy monkey. The campaign has developed a cult following but analysts say that it has been less successful in promoting ITV Digital. In fact, the cost of the campaign equates to £130 per extra subscriber. ITV Digital has 1.26m paying subscribers, compared with BSkyB's 5.7m.

ITV Digital is reportedly preparing to renegotiate its £90m-a-year TV rights deal with the Football League.