ITV Digital facts

Launched 1998 Funding £800m Subscribers 1.1m Break-even forecast 2003 Churn rate 23%

The company must have looked like a good bet when it was first launched under the name ONdigital in 1998.

ONdigital offered all the usual money-spinning opportunities of digital broadcasting, with one added bonus.

Subscribers could decode their digital signals via a simple set-top box, making unsightly satellite dishes and cable trenches unnecessary.

Affluent audience

The company's backers argued that this would make ONdigital the digital TV provider of choice to the affluent viewers of Middle England.

They believed that advertisers would pay a handsome premium to reach this elusive target audience, and expected that viewers would generate additional revenues through 'interactive' activities such as purchasing goods through their TV remote controls.

Three years on, Granada and Carlton's confidence looks misplaced.

ITV Digital is on the brink of going into administration.

So far it has cost its backers well over £800m, and had been expected to burn through a further £300m before it finally hoped to deliver a profit in 2003.

By that time, the station was expected to have accumulated 1.7 million subscribers, up from around 1.1 million now.

Gloomy outlook

But already last year many analysts believed this forecasts were over-optimistic, and called on Granada and Carlton to get rid of their ailing digital joint venture altogether.

They argued that the spiralling costs of funding ITV Digital had reached a point where they ran the risk of jeopardising Granada and Carlton's core activities.

Both firms suffered heavy losses, hit by the double-whammy of falling advertising revenues and the spiralling costs of their digital venture.

Flawed business model

So why has ITV Digital failed to live up to its early promise?

One reason is that the economy as a whole, and in particular the advertising market, has been in a sharp downturn for most of 2001 - and things have not improved this year.

But ITV Digital's troubles have also highlighted some serious flaws in the company's business model.

Patchy reception in many areas has deterred subscribers, while frequent technical glitches in ITV Digital's set-top boxes has led many others to disconnect.

The churn, or disconnection rate, among ITV Digital subscribers is running at 23%, compared with just 12% at BSkyB.

More seriously, the subscription cards needed to activate the set-top boxes are easy to duplicate, exposing the company to heavy losses every month through piracy.

Nor have the promised advertising revenues materialised, with ITV Digital's audience tending to fragment between the dozens of niche channels available.

Many viewers add that ITVDigital's content is quite simply not as good as that carried on BSkyB or cable.