YTT talks digital with Canal Plus

ITV company Yorkshire-Tyne Tees has held informal talks with French satellite broadcaster Canal Plus about developing a digital service to compete with Rupert Murdoch's pay-TV system.

Any deal arising from the talks, which YTT chairman Ward Thomas characterised as "preliminary", might allow Britain's commercial television broadcasters to distributed digital services without using "conditional access" technology controlled by Mr Murdoch's News Corp. News Corp owns 40 per cent of the UK's successful analogue cable and satellite pay-TV broadcaster BSkyB. Mr Thomas cautioned, however, that digital TV was still a long way off.

YTT's chief executive-designate, Bruce Gyngell, who is former head of London Weekend Television, added: "All the takeovers and mergers in old- fashioned analogue mean you have to ask yourself just how confident people are that digital is going to sweep the world."

Mr Thomas said the company's cash balance, about pounds 30m, was more likely to be used to develop new programming and buy shares in ITN, in which Granada and Carlton hold 36 per cent each. The two have been told by the Independent Television Commission to cut their stakes to 20 per cent each by the end of the year.

The YTT executives' remarks followed the publication last month of the Government's White Paper on digital TV, which heralds the creation of up to 18 new channels, with guaranteed capacity for the existing terrestrial broadcasters. The Government said companies could bid for the right to run "multiplex" providers of digital programming. Mr Thomas said yesterday YTT was likely to bid for a multiplex licence, in partnership with other companies.

BSkyB intends to launch a digital satellite service within a year to 18 months, which some industry observers believe might pre-empt the market for digital terrestrial TV.

YTT's six-month figures yesterday showed pre-tax profits rose to pounds 7.4m from pounds 300,000 last year, when YTT suffered a catastrophic overselling of advertising time, precipitating expensive restructuring and refunds. The interim dividend is 3.7p, up from a nominal 0.1p.

Profitability was still hampered by the company's huge licence fee to the Treasury - the result of what it now admits was an "overbid" at the time of the last licence round in 1992. In the six month period, YTT paid pounds 32m for the Tyne Tees and Yorkshire licences.

Mr Gyngell said the Government's two-licence limit on ITV franchises was "absolutely ludicrous".

YTT has formally advised the Government that a "share of audience" limit made more sense, and suggested a 25 per cent ceiling. That would allow Granada, which now holds 14 per cent of YTT in addition to its two ITV licences for the North and London weekend, to make a bid for the entire company.

Speculation that such a bid might be allowed following a change in policy has helped underpin YTT's rapid rise on the stock market, from 366p at the beginning of the year to 609p yesterday.

Mr Thomas denied, however, that talks had been held between Granada and YTT about an eventual merger, despite speculation in the weekend press.