ONdigital is expected to announce a growth of 70,000 customers when it unveils its Q1 2001 subscriber figures this week. This is down on the 121,000 new customers it signed up in the first quarter last year. The slowing growth is mainly the result of churn – the number of customers leaving the ONdigital service.
Analysts at ABN Amro say that the market’s perception of the digital terrestrial broadcaster has deteriorated somewhat over the last three months, mainly due to a shift of focus toward loss-making companies, rather than an obvious dip in the performance of ONdigital itself.
This shift in market sentiment is putting a lot of pressure on Carlton and Granada to bring the company to break-even as quickly as possible. A focus away from the subscriber-based business targets, prevalent so far, towards profit-orientated targets also seems to be in demand.
In the year to September ABN predicts that ONdigital will turn in a loss of £312 million; losses are then expected to gradually decrease until break-even is reached in 2006. The broker says that the scale of investment is already three times that announced when the company was launched in 1998. Costs have been particularly driven up by the need to match BSkyB’s free set-top box offer and the acquisition of football rights.
ABN values ONdigital at around £700 million in financial terms. However, actual value is very difficult to tie down at this stage as the development of the company could head in a number of ways. As a result no potential value from the group has been factored into owners Carlton’s and Granada’s share prices by the market.
Essentially, ABN proposes that if ONdigital is to be a viable and valuable business long-term, it needs to change its business model. More specifically, it must endeavour to increase its gross profit per subscriber, reduce churn and lower subscriber acquisition costs.
