Remembering the fall of ITV Digital, twenty years on

Those who call Rupert Murdoch cynical should note Oscar Wilde’s definition that a cynic knows the price of everything and the value of nothing.

Murdoch may be price-conscious, but he knows the value of many important things. Football is one of them – and like any good manager, he knows the value of destroying a rival. Having gambled his business empire on launching satellite TV, and with the booming Premiership symbiotically powering Sky’s penetration into both the nation’s heart and hearth, Murdoch wasn’t exactly thrilled with the government-proscribed late-90s arrival of digital terrestrial television (DTT) prior to the inevitable analogue switch-off.

Delivered through the traditional aerial as well as a set-top box, DTT threatened his bin lids with its massive potential for bandwidth and channels. However, that breadth was Murdoch’s way in. Alongside the terrestrial stations, the Independent Television Commission (ITC) made room in 1997 for British Digital Broadcasting (BDB), a consortium of ITV’s two major players Granada and Carlton, plus BSkyB.

Not for the only time, though, Murdoch was thwarted by authorities wary of his media footprint: nudged by the European Commission’s monopoly monitors, the ITC ordered Sky to drop its stake in BDB. While Sky renegotiated to provide sports and films, Murdoch realised – like Apple after him – that it’s far better to own the distribution platform than the content on it. Promoting Sky’s rival upgrade from analogue satellite to digital satellite, he promised “a fight to the death”.

The awfully-named ONdigital came out punching: chief executive Stephen Grabiner said, “Sky is for sad people who live in lofts,” but concluded one overconfident presentation to City analysts by adding, “Now all we have to do is sell the dishes” – which his system didn’t even use.

Murdoch had played these war games before and knew that media was about content, primacy and price: Sky Digital had more than 200 channels compared to ONdigital’s 40, had launched first, and was £40 cheaper. Meanwhile, ONdigital missed the Christmas market and its technology was unreliable, with stories of interference from passing buses: Sky’s chief executive Mark Booth gleefully reworked ONdigital’s “plug and play” claim as “plug and pray”.

“The box was shocking, so clunky,” a high-profile ITV Digital insider tells FourFourTwo. “Sky had brought out a fantastic box – so intuitive, so quick. Ours was half as impressive and slow. I remember thinking, ‘Jesus, if this is what we’re working with, it will be an uphill struggle.’”

Projections in the Sky

For the struggling media concern, football is one way to the country’s heart. In May 1992, Sky paid £304 million to snatch the first five years of live Premier League coverage from ITV; that ownership was renewed from 1997 to 2001, at a cost of £670m.

So at the mid-June 2000 rights auction for 2001-2004, stakes were literally high. And while Sky splashed £1.1 billion for the majority of live Premiership games, ONdigital shelled out £315m for live Nationwide League and League Cup matches, with several on ITV. At £105m per season, it more than quadrupled the previous Sky deal of £125m over five years, and even though the other rights rocketed, it remained the Football League’s most lucrative per-season TV contract for 19 years. At the other end of the cash pipe, Football League clubs rejoiced.

“It was shown to us as, ‘Wow, we’ve pulled this one off’,” Barry Kilby, then the chairman of freshly-promoted second-tier side Burnley, tells FFT. “It was heralded as a big breakthrough: ‘there’s a revenue stream here that we’ve never thought about’.”

Fifty miles and two divisions south, Macclesfield Town were counting the coins in something approaching disbelief: three years earlier, they had only ever been in non-league.

“We’re talking about a time when there was no money in football – everyone was going loopy about this deal,” former Silkmen secretary Colin Garlick explains to FFT. “When ITV Digital came along, everyone pretty much said, ‘This sounds too good to be true’. And it turned out to be exactly that."

Hubris was in the air in early 2000; the dotcom boom had raised vas sums of venture capital for firms with nothing but an idea and a name. Speculative money was being spent, and the TV rights win demanded another shopping spree ahead. 

“ITV looked at everyone, as they had quite a lot of cash to chuck around," one industry name who joined tells FFT. "They tried to lure people like Jeff Stelling as their main presenter, and also looked at Rob Hawthorne and a number of top commentators."

Poaching didn't exactly soothe the burgeoning rivalry, especially when some genre-jumpers got a little garrulous. 

“They said when we set up that ITV’s coverage would be so much better than Sky’s,” says the insider. “Certain people overstepped the mark, and obviously this filtered back.”

Meanwhile, with impending riches burning a hole in their pocket, Football League clubs were finding wages inflating rapidly – even at humble Macclesfield.

“Everyone was wallowing in the money that it was bringing in,” says Garlick. “What tends to happen in football is that if the broadcasting revenue goes up, then players’ income goes up with it.”

For the club with the League’s second-lowest crowds, these weren’t exactly fathomless riches – Garlick says the average Macc first-teamer earned about £500 per week. “We were budgeting appropriately, and spending money we genuinely thought we would get.”

Each club was cutting its cloth according to the projected incomes. In November 2000 – after the deal was announced, but before all the coverage started – second-tier newcomers Burnley broke their transfer record to make Ian Moore their first million-pound signing.

“We had put it in as part of our revenue stream – we had money to spend, and we did,” recalls chairman Kilby.

When it hits the fan – and no one tells you

In the summer of 2001, ITV Digital displaced ONdigital, with the ITV Sport channel at its centre.

The rebrand made sense, tying the struggling set-top floggers to an established TV station. Adverts featuring Johnny Vegas and a knitted monkey drew attention, but still the hardware wouldn’t sell. The monkey sold for hundreds on eBay; the boxes stayed in storage; the coverage stayed largely unwatched. Thursday night matches and 6.15pm Sunday kick-offs didn’t help.

“We were going for slots that weren’t taken,” says the insider. “The Europa League wasn’t invented, so Thursday nights were a clean slot. Super Sunday was on until 6pm, so we were trying to get on the end of that. But 6.15pm was the graveyard shift: managers hated it, fans hated it – who wants to be in a football ground at 8pm on a Sunday?” But the concern wasn’t dissenting match-going spectators: it was absent couch-dwelling ones. On October 9, The Guardian’s John Cassy noted that the second-tier encounter between Nottingham Forest and Bradford City, “the rights for which cost £1.2m, attracted 1,000 viewers to ITV Sport. It would have been cheaper for the channel to drive each of its viewers to the ground, put them up in a five-star hotel and give them all £500 spending money.”

ITV Digital was soon losing one in four customers – many tempted by tittering counter-offers from Sky – while the encrypted subscription cards could be easily cracked and counterfeited. An estimated 100,000 were in circulation: no small figure when you consider that by October, ITV Digital had just 1.3 million subscribers to Sky’s 5.7 million and the company was rumoured to be losing £1m a day.

“The problem was that no one was watching,” continues the insider. “It was, ‘Don’t worry too much about the box or viewing figures. We’ll get on Sky’s platform, then we’ve got the potential to reach millions’.”

For much of 2001, however, there was a big hole in Sky’s programme guide. ITV had initially refused to distribute its content that way; when advertising revenues suffered, they offered an olive branch – and were told where to stuff it.

“As we got to November I thought, ‘Well, if they’re not getting it for Christmas, that’s not good,’” explains the staffer. “By January, people don’t have any money and the arse end of the season isn’t far away.”

The main ITV channel finally broadcast via Sky from November 22, 2001 – but not ITV Sport, because Carlton and Granada disagreed over whether to prioritise platform exclusivity or potential reach. Sky’s suits were in no rush: as one executive admitted to the Financial Times, “For Sky, a deal would be about added content. But, unfortunately, most of the ITV Sport content is not Champions League but Barnsley.”

In late February, Sky offered to carry ITV Sport for £4m per year; ITV baulked and instead offered to sell the channel to Sky for £80m, which was snubbed. By now turning from gleeful to worried, media analysts reported that the official viewing figure for the League Cup semi-final between Blackburn Rovers and Sheffifield Wednesday was zero. In March, the BBC claimed that ITV Digital had already shed 25 per cent of its workforce. “You start picking up rumours from other outlets,” says the insider. “It’s weird when you’re in the media and you’re sat watching another media outlet tell you what’s happening at your company, because no one there is going to tell you that the s**t's hit the fan."

In March, Granada chairman Charles Allen wrote to prime minister Tony Blair warning that ITV Digital could collapse without government support. The news got out, which prompted Carlton chief Gerry Murphy to accuse Allen of “hysterical scaremongering”, shareholders to panic, Carlton/Granada merger proposals to be postponed, and presumably Rupert Murdoch to smile. Suddenly, the whiff of strong coffee reached the noses of Football League clubs, too.

“We have already committed to player contracts based on projected income,” said Norwich City’s chief executive Neil Doncaster, now head of the Scottish Professional Football League. “There are no savings we could make apart from selling players. People shouldn’t underestimate the catastrophic effect if the TV deal is cut adrift. It will kill clubs.”

With The Guardian estimating “at least 30 clubs under threat”, fears were rising. “We want to put more pressure on the government to get involved,” said Alan Bloore, deputy chairman of the National Federation of Football Supporters’ Clubs. “We can’t allow this to become another national disgrace like the railways and Millennium Dome.”

From being the cash-splashing hero, ITV Digital was now the villain of a tragedy that threatened livelihoods and clubs’ existences. “I heard a story about Paul Walsh and a Winnebago after one game late in the season,” remembers the insider. “A few fans noticed it said ITV Digital on the side and started chanting, ‘ITV, w**k w**k w**k’, so Paul opened the curtains and gave them the V-sign. Then they began rocking the van. There was a real resentment towards us – by the end, we were seen as public enemy number one.”

On March 27, ITV Digital was put into administration. Greg Dyke, BBC director general, was not surprised and said, “There is hardly anyone running a TV company today who doesn’t think they paid too much.”

ITV Digital still owed £180m of the £315m deal. They offered £50m but the League rejected it and threatened to sue Carlton and Granada for £550m if they tried to walk away. But the paperwork was an issue.

“Maybe some people weren’t working as methodically as they could have done,” Colin Garlick now says with admirable diplomacy. Carlton and Granada, the two firms underwriting the costs, had never signed a full version of the deal, as League spokesman John Nagle confirmed: “The long-form contract took months to negotiate, and in the end it was impossible for the parties to agree. But there is enough reference in the short-form contract for us to confidently claim that we have the necessary guarantees. This is standard practice in broadcasting deals.”

The PFA’s Gordon Taylor backed a protest by the Football Fans’ Union urging viewers to turn off during the adverts for Manchester United’s Champions League game against Bayer Leverkusen, which somehow failed to cause a revolution. By April 29, Dyke conceded that BSkyB was “the only candidate likely to make pay DTT work”, and a few days later ITV Digital screens went blank.

Football League on life support

On July 5, the Football League signed a four-year contract with Sky for £95m. At £23.75m per year, it represented less than a quarter of the unhonoured contract and even slightly less than Sky had paid in 1995. Curiously, Football League suit David Burns denied that ONdigital had overspent. “They paid the market rate at the time, and in June 2000 it was significantly ahead of what it is today,” he stated. And, evidently, every day until 2019.

Sky had taught a humiliating lesson to ITV, the League, government and all who had jumped ship. ITV Digital staff were just as confused as the clubs. “We always assumed that if you’d signed a three-year deal, how were you going to just dump it?” says our insider. “But it wasn’t signed. The Football League really f**ked up.”

At clubs, mood turned from disbelief to anger. “There was obviously a lot of finger-pointing,” says Garlick. “Many clubs were in trouble and people were looking for someone to blame – understandably.”

“The Football League had cocked up with the contract,” adds Kilby. “Then they lost the court case.”

At the High Court on August 1, Mr Justice Langley exempted Carlton and Granada and ordered the League to pay their legal costs of about £1m. The two companies had sunk approximately £750m into getting just over a million subscribers at best.

Back at the burnt-out ranch, Norwich major shareholder Delia Smith said, “We have been left with a £2m hole in our budget for each of the next two years. Any players’ contracts signed from now will be at a lower level.” At Burnley, says Kilby, realism was already setting in.

“In the board meeting, we were looking round at each other saying, ‘What are we going to do?’ We had to scramble: myself and two other directors put cash in.” But it wasn’t enough, and the Clarets had to sell Turf Moor. “We did a deal with the bank and leased it back,” explains Kilby. “It was an emergency.” They bought it back in 2013.

With the fool’s gold gone, clubs returned to old dependencies: either the largesse of the local butcher, baker or candlestick-maker, spiralling debt at the local bank, or player sales that might prohibit any chance of upward movement. At Macclesfield, says Garlick, “We were luckier than most as we sold Rickie Lambert to Stockport County – £300,000 with some add-ons, which was crucial at the time. Whether we would have survived without that I honestly can’t say.”

Bigger clubs weren’t exempt. Coventry City’s former chief executive Graham Hover tells FFT, “We were relegated from the Premiership in 2000/01, and therefore lost substantial income from the Sky contract. Although we benefited from parachute payments, we still had a need to seriously reduce our debts. We sold players, but that wasn’t enough – and the loss of more income from ITV Digital’s collapse compounded our problem. We had to continue offloading players on high salaries.”

However reluctantly, administration was a real possibility for several clubs, including previous models of fiscal probity. Take Barnsley, who made a profifit in each of the dozen campaigns under chairman John Dennis before the ITV Digital season, even while rebuilding Oakwell for the Taylor Report era. In October 2002, they went into administration.

“You can imagine my devastation,” reflected Dennis a decade later. “We were accused of being profligate for committing money that we had not yet received, but I have no sympathy for that point of view. It was perfectly reasonable to assume the terms of a properly negotiated contract with a properly constituted company would be honoured.”

Barnsley weren’t the first Yorkshire club forced into administration as ITV Digital fell: Halifax Town went in April, Bradford in May. Then came Notts County, Leicester City, Port Vale, York City and Ipswich Town before Valentine’s Day 2003.

Some bounced back from financial catastrophe quicker than others. “People would go into administration and pop up again, bumping the debts, forming a ‘new company’ and staying where they were in the league,” recalls Kilby. “There was anarchy in football with clubs going into administration,” agrees Garlick. “Eventually came the points deductions.”

In an April 2003 meeting of the 72 League clubs at the Walkers Stadium, hosts Leicester were the only one to vote against a resolution that teams who go into administration should have points deducted or be relegated. The Foxes had dropped out of the top flight in the summer of 2002, moved to their new home, gone into administration in October, written off 90 per cent of their £50m debt and were well on their way to automatic repromotion. Neil Warnock, for one (if not for once), was apoplectic. “I find it quite immoral,” he wrote in his programme notes for Sheffield United’s third-vs-second game with Leicester. “Everyone who has huge debts will do exactly the same, and it leaves clubs like ourselves – who run a tight financial ship – at a disadvantage.”

Introduced from 2004/05, deductions have been enforced 20 times on 19 Premier League or Football League sides – Portsmouth, twice. All but two (Bolton Wanderers and Bury) came in the rule’s first decade.

The dangerous games they play

What did we learn from ITV Digital? Trust in TV companies was eroded; fear of Sky increased; the financial gap below the Premier League has continued to widen as the Football League becomes a venerable but marginal operation in the new era of broadcast-boosted globalisation.

“As much as I love the Football League, it’s not a massive drawer of audiences,” says the ITV Digital insider. “People are loyal to their sides, but you don’t get many neutrals tuning in – it was a waste of money.

“It was a bit of a risky venture. Quite a lot happened, and you knew fairly soon that you were on to a loser. It was flawed from the start, and the business model just didn’t work. It wouldn’t work now, either.”

Imagine a league built not on the shifting sands of broadcast rights, but on a sustainable basis. Worryingly in 2018/19, the Championship’s desperation-speculation model tempted 17 clubs to spend 90 per cent or more of their income on wages; 13 paid more than they earned, with Reading running at 226 per cent wage-to-income levels.

This isn’t even, as with ITV Digital, expenditure conditional on income suddenly and unfairly lost: it’s a gamble on a pot of gold that may never come. It leaves teams in a precarious place best of times, let alone when a pandemic pulls the rug and leaves giant question marks over their viability. Kilby, still active and beloved at Burnley into his seventies, sees parallels between then and now: “It was a massive shock – it’s weird how similar it was to what’s just happened, although different circumstances. You would never have dreamed of this situation, but you didn’t then, either.”

The hypothetical rainy day has arrived, and it remains to be seen how many clubs can walk alone through it.

Originally published in the June 2020 edition of FourFourTwo magazine and on FourFourTwo.com in April 2022.