Earthquake: The Collapse of ITV Digital

When it comes to the finances of lower division football clubs, it always feels like armageddon is just around the corner. It’s always there, like the car in the rear view mirror in Duel, a silent but ominous presence that may one day wreak havoc across the entire landscape of the game, but somehow hasn’t yet. When a club collapses into administration, the rest of us have pause for thought – usually “There but for the grace of God go I” – but the clubs are almost always rescued. In the rare cases where they’re not, a replacement is always quickly established. Life returns to normal for all concerned – apart, of course, for those who have lost their jobs or money as a result of a club’s recklessness.

People talk a lot about the inevitability that the football bubble will burst, but this hasn’t happened yet and there is plenty of space into which growing wage demands and television contracts can yet expand. History, however, already has the story of what can happen when something this seismic goes wrong, a mixture of incompetence, wrong-headedness, subterfuge, hubris and collapse which could have strangled the life out of the Football League altogether. It’s a story of the company that was doomed, more or less from the very moment that it came to life and the collateral damage that it caused when its obvious contradictions were exposed to the harsh glare of public opinion and the rules of the market.

To understand how this could have happened, we need to go back a little over twenty years to the beginnings of digital television in the UK. Satellite and cable broadcasting had begun in the 1980s, but attaching a satellite dish to the outside of one’s house remained anathema to many people. Digital television delivered by cable would make this unnecessary, but still there were issues. The technology owned by the market leaders in the field, Sky, was already somewhat outdated and lacked the capacity to be able to deliver what would be expected, while Sky’s debts also limited their ability to update their infrastructure easily.

Partnership, therefore, was the order of the day and in January 1997 the ITV companies Carlton and Granada teamed up with Sky to form British Digital Broadcasting (BDB). Such a partnership, however, drew the attention of the Monopolies and Mergers Commission and they prevented the companies from pushing ahead together. Carlton and Granada decided to proceed with BDB. Sky, somewhat against their will, had to renegotiate their supply chain and delivery contracts before going into competition with them. And as anybody with the vaguest idea of Sky’s business practices will already be fully aware, this can often lead to serious problems for those would seek to oppose them.

ONdigital was the name chosen for BDB’s service, and it launched in November 1998. Almost immediately, though, there were problems. Difficulties with supplying set top boxes meant that lucrative Christmas sales were missed, whilst Sky’s alternative was aggressively priced and marketed, making the ONDigital service look expensive and unattractive by comparison. BDB had set their pricing against Sky’s analogue satellite service of twenty channels. When Sky launched, their set top box was £40 cheaper than ONDigital’s, and offered two hundred channels. By April 1999, ONDigital had 110,000 subscribers, but Sky had 350,000.

By the start of 2000, these teething problems had solidified into a perpetual feeling of crisis. ONDigital’s signal strength wasn’t as strong as had been expected, leading to reception problems in some areas, whilst the boxes themselves had confusing menus and no Electronic Programme Guide. As early as January 1998, the media industry magazine Campaign was warning that, “With the mix of channels on offer from ONdigital not straying too far from the choices already on offer through analogue cable and satellite services, the company might have to work hard to build a market.”

And in addition to all of this, the encryption on their subscription cards was cracked very early on, and ONDigital’s failure to address this meant that it was soon possible to produce and sell counterfeit subscription cards which would give access to all channels free of charge. There were said to be more than 100,000 of these counterfeit cards in circulation by 2001. It has even been suggested that Rupert Murdoch’s Newscorp could have been involved in the hacking, but this has never been definitively proved. In March 2002, Canal+ alleged this and took the matter was taken to court, but the case was dropped after Sky purchased one of its subsiduaries. Similar allegations were made at the same time in an edition of the BBC’s current affairs show Panorama.

At the same time, football in England was continuing its efforts to increase its financial clout. The sale of Premier League television rights for £304m in 1992 had set in motion a chain of events that had increasingly come to resemble a mad rush for cash at any cost. Clubs had, however, found to their cost that there were limits to this. Attempts to bring in more money from floating on stock markets had been broadly unsuccessful, whilst wage inflation and the Bosman ruling of 1995 had also radically changed the way in which they did business. In 2000, the Premier League signed a further contract worth £1.1bn over the next three years, all very good news for the clubs in that division, but not so good for those below it, and especially those who had been relegated from it.

Newly-emboldened by the arrival of a new chief executive, Stuart Prebble, in the summer of 2001 ONdigital decided to go all in, bidding £315m to secure exclusive rights to show Football League and League Cup matches over the next three years. It was wildly above the market rate – the current Football League television contract is worth 13.5% of its Premier League equivalent, but the 2001 ITV contract cost more than double this, proportionally – but the hope was that pay-per-view television would make up that shortfall.

ONdigital had rebranded itself as ITV Digital a year earlier and an advertising campaign featuring the comedian Johnny Vegas and a woollen monkey had proven popular, but there were those who already believed that the battle was lost. The Football League simply didn’t have the same draw as the Premier League, and by the end of October 2001 ITV Digital had 1.2m subscribers compared to Sky’s 5.7m, almost a third short of their reported breakeven figure of 1.7m. Viewing figures, however, were pitifully low for matches – some were so small that they registered as zero – and as the 2001/02 season wore on, the warning signs became louder and more clear.

ITV Digital couldn’t afford this contract. This much was obvious. But the problem was that the clubs had already started spending the money. There are two schools of thought on the wisdom of this. On the one hand, it might be argued that clubs were perfectly entitled to do so. After, a legally binding contract had been signed and businesses should be able to invest on the basis of contracts that will run for the next three years. Some, however, countered this argument by suggesting that clubs had put too many eggs in the basket marked “television”, and that any pretence of prudence in clubs’ spending activity went out of the window as soon as the contract was signed.

As the 2001/02 season progressed, the situation became more desperate. In March 2001, the chairman of Granada Television, Charles Allen, wrote to the Prime Minister to warn that the company could collapse altogether without government support. The Carlton chief executive accused the accused Allen of “hysterical scaremongering”, a level of confusion and in-fighting which sent a fresh wave of nerves through the City of London. On the 27th of March 2002, ITV Digital was put into administration. The company sought to renengotiate its contract with the Football League, offering £50m for the remainder of the contract that they’d held, but the Football League turned it down. On the first of May 2002, all ITV Digital channels stopped broadcasting except for ITV Digital Sport, which kept going for a further ten days. By the time the dust had settled, over 1,000 jobs had been lost.

By the time the company was formally liquidated in October, they owed £1.25bn. ITV Digital had spent, it was estimated, £750m to get itself 1.2m subscribers. The Football League, with its member clubs having lost £178.5m as a result of this collapse, took the matter to the High Court, but on the 1st August 2002 they lost the case, with the presiding judge summarising as follows:

In my judgment Carlton and Granada are entitled to the declaration they seek that neither company is liable to The Football League for any sums due under or damages payable for breach of the June Contract made between the League and ONDigital, now ITV Digital. There was no guarantee by either company of ITV Digital’s obligations under that contract.

The ITV companies had agreed to guarantee payments from ITV Digital in their original bid for the rights, but this had never been written into the final long form contract and, as such, Carlton and Granada had no liability in this respect. It was an astonishing oversight on the part of the Football League, although not completely uncommon in media contracts at the time. Carlton avd Granada, though, were off the hook. Charles Allen was knighted that year, for his work with the 2002 Commonwealth Games, which had been held in Manchester.

Up a creek and without a paddle, the Football League hastily agreed a television contract with Sky worth £95m over the next four years. For Sky, the Football League offers the chance to offer a football package that looks some way towards complete and matches with which they could pad out their weekend schedules. For the Football League, it was the only offer in town and they had little option to accept it. The chairman of the Football League, Keith Harris, resigned. The York City chairman and professional tyre-kicker John Batchelor made pie in the sky claims that he could rescue the service but, as with so many of his other public pronouncements, nothing ever came of it. Carlton and Granada were heavily criticised, and those that would seek to blame anything possible on the government blamed it on the government.

Bradford City were the first, falling into administration on the sixteenth of May. Seven more followed over the course of the 2001/02 season, and a total of fourteen Football League clubs would be forced into administration by May 2006, four years after the collapse of ITV Digital. Four Football League clubs had suffered the same in the previous four years. It would be unfair to say that ITV Digital’s collapse was the sole cause of these problems and the other significant difficulties caused elsewhere, though. It has been an ongoing and recurrent theme over the last decade and a half, and it’s arguable that we still feel the after-effects of it today. Football clubs have been flying by the seats of their pants for as long as anyone can remember.

But it certainly had an effect at the time. Under the new deal – which First Division (now Championship) clubs had reacted furiously, many believing it to have been signed in haste – their annual television money fell by two-thirds, from £2m a year to £700,000 a year. Professional football is its own economy and it doesn’t necessarily peak and trough in line with the rest of the world’s economies and the effect of the ITV Digital collapse was to completely stagnate football’s internal economy. Building projects were put on hold or scaled back at five different clubs. Premier League clubs were already looking abroad rather than towards the lower divisions, but when all Football League clubs had to tighten their belts to some extent or other, it felt like the entire Football League was teetering on the edge of a cliff, almost close enough to be able to see over the edge before hauling their way back.

The same thing has happened again since, of course, with the collapse of Setanta Sports in 2009, but its contracts with the Premier League were relatively small and had a high re-sale value. The Football League didn’t have that option. Sky seems immovable nowadays, with its biggest competitors likely to be content distribution services such as Amazon (who’ve already dipped their toe in for the next contract with one round of Premier League matches), Apple, or Google. BT Sport is simultaneously the best-protected and the most vulnerable. On the one hand, it’s owned by BT, which is a massive company and can afford to underwrite the deals it signs. However, as a smaller part of a bigger conglomerate BT Sport may also be considered expendable, should rights become too expensive or the company simply decide to “follow a different path.” This sort of circumstance is unlikely to be repeated, though the collapse of Eleven Sports earlier this season is a reminder that it remains a tough world out there for media companies.

What is notable about the ITV Digital collapse is that almost no-one who touched it comes away from it with their reputation enhanced. If that money was so critical to the wellbeing of so many of its clubs, the Football League should surely have had a clause written into a final longform contract. The clubs themselves were broadly overspending anyway. Carlton & Granada made bad decision after bad decision. Sky may have been involved in the hacking of ONDigital cards. The regulators didn’t regulate. The government was largely inert. But all of the clubs did, in the end, survive. Things have, however, started to feel tough again in the lower divisions over the last couple of years, and that’s without any sort of external shock having taken place. One can only wonder what might happen were something to suddenly strike the game’s finances from out of nowhere.