Charles Allen: The man with a grand plan

Charles Allen survived the demise of ITV Digital, and he's now spearheading a radical overhaul of ITV plc. He tells Raymond Snoddy why only wholesale change will be enough to safeguard profits in the competitive digital age

At a recent broadcasting awards ceremony, the host Graham Norton brought the house down when he described what had been going on at ITV as the management equivalent of "colonic irrigation".

For the past 50 years, there has been old ITV, or, as Charles Allen, the 49-year-old chief executive of the UK's largest commercial broadcaster, puts it, "ITV Old". ITV Old was an often querulous, squabbling, single analogue channel based on a regional federation. The way to get to the top of that particular food chain, Allen admits, was by doing your best to undermine all your other ITV colleagues so that you could buy their companies more cheaply as the major network players gradually merged into a single company.

However, the modernising of ITV has been almost Blairite in its scale over the past 12 months. The doors have been revolving as ITV Old's management headed for the exit and shiny new faces arrived. The final formal burial rites were held over ITV Old in an elegiac evening honouring programmes past at London's Guildhall in October, to mark the 50th anniversary of the launch of commercial broadcasting in the UK.

"New ITV is a multi-channel, multi-platform, multi-content business," says Allen. He is sensitive to accusations that a great deal of experience has been lost. "What was recognised was that we had a good team - good at playing the old game - but the market, the City, our clients and our own people said we needed to change this," he insists.

Allen, a Scot who started out as a management trainee at British Steel and arrived at ITV with his then business associate Gerry Robinson 14 years ago, is one of the great survivors of broadcasting. He outlasted Michael Green, the chief executive of Carlton and the man slated to run the merged ITV plc. Allen, Green's counterpart at Granada, rode out the storm created by the ITV Digital fiasco, while Green was ousted by the shareholders. He has also survived other embryonic attempts to unseat him by would be rivals.

Following last year's merger of Carlton and Granada into ITV plc, Allen asked himself a fundamental question: "If we were starting from scratch, how might we run this whole thing differently?" The answer led to an early exit for about half of ITV's senior managers and commissioners, and new challenges for the survivors.

"What I wanted was a mix of experience, and this idea that it's all new is wrong," says Allen. "Half are new to us and half were here already, but the key thing is that they are doing new jobs."

In December alone, the spirit of change sweeping through ITV led to the closure of ITV News, the 24-hour news channel, and the purchase of the web business Friends Reunited at a cost of about £175m. Then there was the £134m purchase of the UK digital operator SDN, which will give ITV extra digital terrestrial capacity - enough to enable it to broadcast up to 10 new channels on Freeview, the fast-growing free-to-air broadcasting system. Allen believes that it is a "fantastic" deal.

In addition, the commercial broadcaster has recently re-branded its existing digital channels to create an integrated ITV "family" of channels. So what is behind this flurry of activity? Allen sees it all as a multiple-stage process of development.

After the long, drawn-out consolidation of Carlton and Granada - too drawn-out, Allen believes - the emphasis was on making the merger work. The next challenge was to try to reduce the regulatory burden on ITV, a task that produced savings of more than £120m a year and for which Allen received plaudits from the City.

Then it was on to reshaping ITV for the future, replacing the notion of ITV plc as a remote holding company and trying to create a single team only one step removed from the sharp end of the Network Centre, where programmes are commissioned.

Symbolically, Allen has given up his grand office in the London Weekend Television building overlooking the Thames and moved into a rather dreary glass box of an office in the middle of the Network Centre in Gray's Inn Road. The Venetian blinds are drawn to prevent the office being overlooked by visitors.

"I think there was a real sense of confidence that we could actually do things better if we could work more closely together," says Allen. Research undertaken last year quickly revealed a fundamental problem for ITV plc: everything was seen through the prism of the main ITV1 channel, which inevitably faces pressure from the spread of multi-channel television.

"Some viewers thought ITV1 wasn't for them. Young males in particular didn't think it was a channel for them," Allen explains. As a result, the four ITV channels have been rebranded and colour-coded and the programming of the three ITV digital channels is increasingly chosen to appeal to different segments of the audience.

"People think brand change is about painting it a different colour. It's actually about making the channels stand out in their own right," Allen says.

ITV2, with its extensions of The X Factor and Pop Idol, is aimed at younger women, while ITV4 is mainly targeted at younger men. "ITV4's challenge is to bring in people who wouldn't have tuned in when it was Old ITV. Ultimately, ITV2 and ITV4 will see their competitor as Channel 4. That's the objective," says Allen. Meanwhile, ITV3 is aimed at the more mature, more affluent ABC 1 audience, showing dramas such as Inspector Morse.

"If ITV1 is showing something you don't find attractive, we within the ITV family have got something for you," says Allen. At the end of programmes, attempts will be made to "stream" viewers back to ITV1 again.

But there is no place in the ITV family of channels for ITV News. The channel had always lost money and trailed in third place behind BBC News 24 and Sky News, despite getting scoops such as film of alleged would-be London bombers in July. But the main reason for the closure, says Allen, was his belief that "24-hour news wasn't going to be the answer in future". He is convinced that, increasingly, people will get the news content they want from their mobile phones rather than television news channels. "We genuinely believe that news, in particular, you will get on the move - what you want, where you want it, and when you want it," he says.

The ITV chief executive insists that the closure of ITV News does not mean any lessening of interest in news, and denies that this means one day it will simply get rid of Independent Television News, as some suspect. "Absolutely not. I have made it very clear that if we were actually able to own ITN we would want to do it and we would want ITN not only to be a news provider to ITV but to a number of other players, a number of other platforms," Allen promises.

Next month, ITV will see the launch of a new venture - ITV Play. The aim is to persuade ITV viewers to become "customers", who will pay to play a wide range of games - everything from quizzes and sudoku to soft gambling. ITV Play may form segments on ITV digital channels, or be accessed via broadband and mobiles, with the service promoted heavily on ITV1.

"You may, in fact, have a channel that is called ITV Play but the whole thing is about branding and cross-promotion," says Allen. "The pilots we have done in the last few weeks demonstrate that there is a big appetite for that."

As ITV starts mentally adding up the potential revenues from games players, it believes that one of its biggest recent coups was the one that most mystified observers - the purchase of Friends Reunited, the website that puts former schoolfriends back in touch.

The opportunity was spotted by Jeff Henry, the executive brought in to look at ways of reducing ITV dependence on conventional advertising revenue.

On the day that Henry, who was registered with Friends Reunited, was due to meet the company heads for the first time, he received a note from Allen suggesting that he take a look at the website. Allen was already a subscriber and had traced a couple of schoolfriends as a result.

What both had noticed is that 15 million people have registered with the site, and that five million use it every month. And while ITV.com was ranked as the 60th most popular website in the UK, Friends Reunited was eighth - just behind the big search engines. It was also profitable; it is expected to make more than £9m this year.

"What attracted me originally was the uniqueness of the asset in the area we were actually looking for. It was such an amazing attraction to us. You just can't replicate it," says Henry.

Allen is every bit as enthusiastic because Friends Reunited produces both subscription and online advertising revenue. By next year, online advertising is expected to total £1.6bn in the UK. It's also ITV's way into the broadband world, and ITV plans to use its cross-promotional skills to help develop Friends Reunited.

Apart from bringing former schoolfriends together, the company is developing a dating service and has a fast-growing genealogy business. (Allen is a big fan of the successful BBC Television series Who Do You Think You Are?. Every time it appears, more people interested in their ancestry are driven to the Friends Reunited site.)

"It was profitable and none of the others were. It's a subscription model and it's an advertising model and what I was excited by is the fact that, by putting that together with our cross-promotional capability, we can grow it," Allen explains.

ITV executives hint darkly that one of the newspaper groups most critical of the ITV move for Friends was at the same time manoeuvring behind the scenes, driving the price up by £20m by trying to outbid the broadcaster for it.

But Allen clearly thinks he has got a bargain, and argues that, thrown in with the purchase price, he bought a management team who are already being used for other purposes, such as running a pilot ITV local television and information service in Brighton, using broadband. The Brighton service is already getting more than 10,000 hits a week. The challenge now is to try and earn some money from the traffic to the site.

Allen has a vision of creating a national network of very local services all over the country. "I think the opportunity is there to access the classified advertising market, absolutely competing with local newspapers," he says.

It all adds up to a plan. The aim is to ensure that by 2012 - the year that should see all of the UK completing the move to digital - only 50 per cent of ITV revenues will come from ITV1. The other half will come from all its other activities such as digital channels, broadband and mobile. The proportion has already risen from about 5 per cent a few years ago to 30 per cent now.

But what will happen to ITV1 in this increasingly digital world? Is it a case of managing decline? "I don't think it will fall away in importance. ITV1 is the engine. It's 10 million people watching our shows. It's 10 million people being told: 'You can do this, you can play and you can pay.' I am very confident that ITV1 will continue to be the most watched channel, although its share will fall," says Allen.

The numbers are very clear. In the 35 per cent of homes that only have five channels, ITV gets a peak-time share of viewing of 27 per cent. As soon as one of those homes moves to Sky, ITV1's share falls to 17 per cent. Those who move to Freeview behave differently and ITV1 gets a 22 per cent share, which is why the terrestrial broadcasters are so keen to promote Freeview.

The arithmetic gives Allen a baseline for his worst-case scenario. The worst it could ever get, Allen believes, if everyone in the country had Sky, would be a share of about 17 per cent. The very best outlook in the digital world would come if everyone had Freeview.

"The truth is that it will be somewhere in between," says Allen, who notes, however, that Freeview is winning three out of every four people now moving to digital.

As ITV1 inevitably loses share during the move to digital, the new ITV digital channels help to pull it back. "Once everyone has moved across [to digital], then the growth in multi- channel absolutely creates growth in viewing in ITV overall," Allen predicts.

Viewing share is important but not as important to Allen as share of "commercial impacts": the numbers of eyeballs that actually see the advertisements. In 2004, ITV had a 52.2 per cent share of commercial impacts. Last year it fell only fractionally to 52.1 per cent. In this all-important commercial domain, the BBC becomes not the biggest enemy of ITV but its greatest ally, something that Allen complains is not well understood by the press and the City.

"I see headlines saying 'ITV wiped out by BBC' when Doctor Who gets nine million and we get seven million with Ant and Dec. I'm celebrating the next morning because we have got 70 per cent of the people watching commercial television," says Allen. The key issue for the ITV chief is that his commercial rivals have lost a disproportionate number of viewers to Doctor Who.

Conversely, when the papers are slapping ITV on the back when The X Factor slays the BBC's He's Having a Baby in the ratings, Allen is unhappy because his share of commercial impacts has just dropped by 30 per cent.

In Old ITV, the BBC was the rival to beat. New ITV wants the BBC to get a decent licence fee settlement, though Allen believes the claim for 2.3 per cent above inflation is "a ridiculous ask".

On the commercial side, ITV hopes to develop "integrated communication packages" with advertisers rather than just selling them "buckets of spot advertising". Allen cites the relationship with the holiday group First Choice as an example. The company sponsored and advertised around I'm A Celebrity... Get Me Out Of Here!, launched an online campaign and used the programme in staff competitions.

On the programming side, Allen is committed to keeping Granada as its in-house production arm despite recent speculation that a number of ITV's US shareholders think that a demerger of production would increase value. "To me that wouldn't make any sense. Will everything come in house? No. We have no monopoly on good ideas, but equally I want our own teams looking at what the opportunities are," insists Allen.

The ITV chief executive has now set out his stall with his plans for New ITV and is waiting to be judged by the results. "I'm up for it. I'm really enjoying it even though financially I don't need to do it," he says. "I think that the legacy and the big challenge is creating an ITV that is more than just ITV1."