Sky snub for ailing ITV Digital

SATELLITE TV operator BSkyB has ruled out a 'white knight' rescue for hard-pressed ITV Digital in which it would buy the company's 1.2m subscriber list.

The sale of the list is being examined in an effort to relieve the cost burden of ITV Digital on its two parent groups, Granada and Carlton. They are under mounting pressure because of the dramatic decline in television advertising revenues.

Robert Fyfe, managing director of ITV Digital, last week dismissed speculation that the two ITV companies were preparing to shut the business. Stockbroker Investec Henderson calculates that each parent could save £750m by pulling the plug now.

They have invested £800m so far, but face spending a further £300m in the next two or three years before the digital service stops draining their resources.

ITV Digital has increased its subscribers by 82,000 in the latest quarter since its well-advertised decision to change its name from ONdigital. However, even with 1.2m subscribers it is more than fourm behind BSkyB and loses one subscriber for every four it signs. In addition, one in 10 are believed to be using fake subscription cards.

The possibilities of improving ITV Digital's prospects have narrowed with BSkyB ruled out of buying the subscriber list.

BSkyB apparently regards its rival's subscribers as the 'wrong demographic' and says it does not want to run a broadcast platform that it sees as technically inferior to its own.

Average annual revenues from ITV Digital subscribers are estimated at £227 while BSkyB reckons to earn £313 from each customer. After an advertising campaign that industry executives say cost £11m in the last quarter, ITV Digital is thought to spend £140 to acquire each customer.

BSkyB's decision to distance itself from any involvement with ITV Digital came as its major shareholder, Rupert Murdoch's News Corporation, revealed plans to work with Bill Gates and Microsoft in developing an 'industry standard' set-top box for interactive television.

News Corp confirmed it was in talks with Microsoft, though both companies stressed that negotiations-were at an early stage. In Britain, cable groups NTL and Telewest have been mentioned as potential buyers of ITV Digital's subscriber list, but both companies have severe financial constraints and are unlikely to have £100m to spare.

ITV Digital appears to be pinning its hopes on a favourable ruling from the Office of Fair Trading over its complaints that unfair pricing by BSkyB is restricting outlets for its programming. The verdict could be delivered as early as this week.

If the OFT finds in its favour, ITV Digital might be able to secure a deal to broadcast its channels on BSkyB, substantially boosting its revenue.