This note has been prompted by a flurry of activity in UK television media: the renaming of ONdigital (‘ITV Digital’) and its absorption into the ITV mother ship; the launch of ITV Sport, a new pay-TV channel aimed at sports enthusiasts; the impending final results of BSkyB (‘Sky’) on 25th July 2001 (dealt with in a separate note issued on 20th July) and the renewed concerns over the funding of the UK cable companies.

ITV Digital itself stresses the importance of thinking about the 'platform' and its associated channel, ITV Sport separately. ITV Digital and its shareholders, Carlton and Granada, are highly optimistic about the future performance of the platform. We look at each of the many reasons for optimism that they have advanced. There is strength in many of their arguments, but we still see their breakeven target as very difficult to achieve.

This report updates our thinking on the market segmentation of Internet access in the UK, one year after we buried the European portal model (Portal Strategies, May 2000). It analyses the connectivity needs of large businesses, medium-sized and small enterprises, and residential customers.

NTL's share price slide over the last few weeks has focused attention again on the prospects for UK pay-TV.

This report extends the analysis to the two largest European incumbents, France Telecom and Deutsche Telekom. We look at trends in market share, wholesale and retail pricing, and the impact of increased competition. We identify the companies' strategies in the face of these forces and show the impact of stretched balance sheets on corporate actions.

This report updates our UK E-Commerce 2000 report from December 2000 and our European B2C E-Commerce Update of April 2001. It draws mainly on data provided by the British Market Research Bureau (BMRB) collected in February 2001.

In this report Chris Goodall carries out a brief analysis of Sky's results published today and compares them to our projections.

Our emphasis in this note is on ITV Digital. What are the options open to the two shareholders of ITV Digital, Carlton and Granada? How can they reduce the burden of supporting ITV Digital through the next few years? What is the likelihood (or otherwise) of substantial improvement in that company’s results, in particular break even in 2003?

Mobile Phone Users

We have published extensively on digital TV in the past 18 months, consistently casting doubt on the potential of TV-centric interactive platforms to (a) generate enough income for operators to repay hardware subsidies and (b) compete with the PC for home shopping activity (t-commerce).

We see a clear distinction between the relative success of Sky and the continued slow growth of ITVdigital and the real difficulties being experienced by cable operators. Sky is gaining business while the other operators are struggling to retain their share. This is the first of two notes. In the first (attached), Chris Goodall examines the financial prospects of Sky in advance of its results next week. Chris looks at what would be good or bad numbers for Sky's results in all the main categories, and suggests reasons for short-term optimism. In our next note, which will be sent out on Monday, I analyse ITVdigital and question whether anything can be done to improve its prospects. The launch of ITVsport does not help, with its huge programming budget and limited opportunities.

Chris Goodall has dissected the economics of the major pay-TV operators. He finds that if current trends continue, BSkyB, NTL and Telewest will not generate the cash to pay back their debt in the foreseeable future. In the case of the cable companies this leaves the debt holders exposed. Equity holders should be concerned about further dilution from future debt to equity conversion.

This note considers the so-called 'digital dividend' in light of the recent ITV licence renewals.

The UK online population reached 17 million in February 2001, up around one-quarter on the year, on the strength of rising participation of women (to 44% of users) and of young people. We expect 4 million users to be added to the online population by February 2002, to reach 21 million, with growth at a lower rate than in 2000.