A sombre suit and a galaxy of stars

Mathew Horsman talks to Charles Allen, head of a revamped Granada group, about profit margins and golden oldies on the day a new media group is born

Today marks that rarest of events, the birth of a new British media company, whose backers hope to nurture it to pole position in the broadcasting revolution. Well, not altogether new, perhaps. The company is really just a reconstituted version of one of Britain's best-known broadcasters, the media and leisure giant Granada. But in a move to underline its continuing commitment to television, the company will today unveil Granada Media Group, which will encompass its two ITV channels, Granada and London Weekend Television, and its embryonic satellite joint venture with Rupert Murdoch's BSkyB.

GMG will have its own chief executive in the person of Duncan Lewis, formerly the head of BT's competitor, Mercury Communications. The two ITV licence-holders will each have their own managing directors. At GSkyB, the 50-50 joint venture with Sky, Stuart Prebble, the former controller of factual programmes at ITV Network Centre, will be calling the shots, as announced late last year.

The corporate makeover is the brainchild of Charles Allen, who last week officially took over as chief executive of Granada plc, the parent company with interests in television, catering, restaurants, hotels and TV rentals. He replaces Gerry Robinson, who rises to chairman of the pounds 6.3bn group.

Allen, 39, looks and sounds an unlikely TV man, at least of the traditional kind. He wears a sombre suit, rattles off financial figures from his dauntingly sharp memory and is far more likely to talk about "leveraging assets" than about the quality of Granada's stellar programming library. But in this, he is perhaps more reflective of the commercially minded cabal that now runs ITV: the Michael Greens and Lord Hollicks of this world.

Allen came late to television and openly admits that he knew "next to nothing about it". Born in Scotland, and an accountant by training, his background is in catering: he and Robinson worked together at Grand Metropolitan and than at Compass, the catering arm they helped to spin off in a management buyout. When Robinson was head-hunted to join Granada in 1991, Allen soon followed, controversially replacing the popular David Plowright as head of Granada Television.

The sniping didn't let up for months. What did these "caterers" know about running the crown jewel of the independent television industry, a mighty programming juggernaut? In the end, the pair won grudging respect from an industry that was feeling the competitive pinch. The job cuts they imposed were parroted at other ITV companies and a radical new cost base developed in the commercial TV sector.

Since then, Allen has been in the shadow ofthegarrulous,confidentandintelligent Robinson - never more so than during two acrimonious takeover battles: the first in 1993, for LWT, and the second, the pounds 3.8bn attack on hotels and restaurants of the Forte group, which began last November.

But throughout the past four years, Allen has not only retained the support and trust of his boss, but has expanded his own empire within Granada, taking responsibility for its motorway services and playing a lead role in formulating the strategy that led to the bid for Forte.

His pay-back came in the form of his elevation to chief executive, a role that will give him far more day-to-day responsibility for Granada's now sprawling activities. Any suggestion, however, that the Forte purchase would swing management attention away from television is firmly denied by Allen.

"Television is inherently a good business, and highly cash-generative. It is also a growth business," he said recently at LWT Television Centre in London. Allen has run Granada's TV interests just as he has the rest of the group - with an eye to cost- cutting, low overheads and high operating margins. "TV is a business, and the same rules apply."

It has been an undeniably good business for Granada, fuelled by programmes such as Coronation Street and Cracker and supplemented by significant overseas sales. But Allen sees more opportunities ahead.

Granada Media Group will have a simple objective: to create new markets for the company's programmes, either in the UK or internationally. "We are programme publishers," he says. "The idea that you could make money doing this was laughed at just a few years ago. Now, everyone seems to understand it."

The first expansion is to come with the launch of five satellite channels, in league with Sky. One of these is expected to be a Granada Gold, featuring the best of Coronation Street, Prime Suspect, Poirot and other Granada hits. Thereafter, the Asian, US and European markets will all be targeted, probably with partners.

"We see the GSkyB venture as a model for what we might achieve globally," says Allen.

It will be some time, of course, before the secondary market (cable and satellite) begins to contribute significantly to Granada's profits. For the foreseeable future, it is the core ITV business that will fuel the media company's growth. Here, too, Allen sees room for expansion. "The consolidation of the ITV sector is continuing, and there will soon be fewer players," he says. "That should make it easier for us to work together." Like any federation, the ITV system has had its share of tensions and jockeying, Allen concedes.

He is one of the sector's most fervent believers in consolidation, buoyed by the company's happy experience combining Granada and LWT in 1994. "We put profits up by 60 per cent within 18 months, just on the basis of putting these two businesses together," he boasts.

There is even more value to be released within the ITV sector, Allen says. He is in favour of longer runs of programming, to spread costs over more hours of television. That view is gaining support at the ITV Network Centre. He also believes there is a bigger market for "precinct dramas", filmed on simple, established sets. Granada's new soap for ITV, The Grand, is an example of this.

Allen wants his new company to expand the amount of programming it supplies to other broadcasters. This includes Channel 5, the new terrestrial service being launched next year by Pearson and MAI, two competing media companies. He is not complacent about the arrival of Channel 5, even though he expects its backers to have difficulty in moving the service into profit, particularly in light of the need for a pounds 100m-plus investment to help viewers retune their VCRs so they can receive the new signal.

"Channel 5 will struggle, and the whole re-tuning exercise will be difficult. But we mustn't be complacent. They will be fighting at the margins, not necessarily in peak viewing, and there will be competition." He expects the daytime schedule to be a prime battleground.

Whatever the future of traditional terrestrial TV, Allen reckons the real money will come from the introduction of digital services, be they satellite or terrestrial.

"The real future for digital is pay per view. For instance, people will be able to buy a `season ticket' to watch the matches of their favourite football team." But, he warns: "There is work to be done encouraging people not to expect to get everything for free."

This is one reason he wants to find markets outside the UK, particularly on the Continent, where he believes there may be more of an immediate appetite for pay-per-view services.

Using the GSkyB model, Allen intends to approach potential joint-venture partners in his target markets. "We need to show that we are a pretty girl at the party," he says.

Granada Media Group will have a struggle to compete globally. It is without a doubt a leading UK broadcaster, one of three - the others being Michael Green's Carlton Communications and Yorkshire-Tyne Tees - that dominate domestic commercial television. It is also a leading programme-maker, with a terrific library of old favourites. But next to the monster media companies - Disney, Time Warner, News Corporation or Viacom - GMG is still a minnow.

Allen is not daunted, however. Granada won its battle for Forte against the odds, and he expects to be just as successful growing the media business, with his sights firmly on the very big leagues.

Charles Allen: caterer with an appetite for takeovers

Job: chief executive of Granada and chairman of Granada Media Group

Born: Lanarkshire, Scotland, in 1957

Early career: financial management at British Steel, TM Group and Grand Metropolitan, where he helped to launch a management buyout of its catering subsidiary, Compass, with colleague Gerry Robinson, who is now chairman of Granada

Recent moves: joined Granada in 1991 and is ultimately responsible for its leisure, catering and television interests. Helped to develop strategy that led to the hostile bid for Forte in late 1995. Established Granada Media Group on 2 April 1996