Can ITV Sell Its Friends? And Where Now For Its Online Strategy?

imageWednesday’s unprecedented announcement from ITV’s Michael Grade showed us one tactic above all others – when your back’s against a wall, run away from online. Financial struggle forced ITV (LSE: ITV), in one fell swoop, to tear up its ambition, staked out four years ago, of becoming a significant player in original web content and community. Beyond, the hoped-for sales of Friends Reunited and Scoopt, together with the closure of ITV Local and SDN sale, leave ITV with just one significant branded web property – the PriceTerrier white-label shopping comparison site it recently launched with Kelkoo.

Who will buy Friends Reunited, and why?: First, there’s the small matter of selling three significant digital assets during a recession. At £120 million, ITV bought Friends Reunited at a multiple 13.5 times its 2005 earnings. But it sat back while Friends’ dependable subscription income kept coming – and emerging social networks stole the site’s first-mover advantage from under its nose. Now it’s all about Facebook and, in the grand scheme, Friends is a virtual irrelevance.

Through its premium subscriptions, the site was pulling in two thirds of ITV’s online income earlier last year, but over the course of 2008 its income fell 18 percent thanks to lack of foresight. In switching from subscription to ad support just in time for the advertising downturn, ITV slaughtered the one revenue model that made Friends viable at present – this may discourage potential buyers, who might have been interested in guaranteed customer income but who will baulk at the prospect of making significant advertising returns from the increasingly marginalised property. If the more modern likes of 22 million-user Bebo, which sold for an albeit ridiculous $850 million, are having difficulties monetising in this climate, then ITV will be extremely challenged to make a return above the £18 million Friends Reunited pulled in last year alone.

Friends’ 19 million user profiles may prove to be interesting data for anyone looking to build a marketing list, should terms of service allow, but the modern social nets are unlikely to buy Friends – many of its users have already made the jump. ITV is more likely to find a buyer for the Genes Reunited spin-off, which still has premium subscribers and which could interest specific genealogy category players like operator The Generations Network. Friends could end up an internet museum relic – but the founders won’t mind by now; they quit last year after seeing out their earn-out terms. ITV says it will sell Friends “when the time is right” – which begs the question, when exactly will that be?

Scoot for who? Another casualty, ITV bought the local business directory’s operator Enable Media in 2006 for just £3 million, intending to to turn it in to a business finder for each of its ITV Local sites. Today, however, ITV Local’s “business finder” is merely a hyperlink to; Enable hasn’t updated its own site in two years. Once upon a time, Scoot held its own amongst rival business searchers and But it’s withered on Friends Reunited’s vine, and now everyone in the space finds themselves going up against mere search sites like Google (NSDQ: GOOG), as well as user-powered local reviews sites. Like Friends, It’s hard to imagine Scoot would make a great acquisition target, unless it has some particularly unique technology or its database of businesses can be snapped up by someone like for cheap.

So much for local video: ITV had hoped its ITV Local network, mapped on to its regional TV franchises, would allow hyperlocal and user-generated community services to blossom – and get it off the hook for its waning commitment to regional TV programming. But, despite some good ideas and eventual on-air promo, it has always been a technological dog’s dinner. Now that Ofcom has lessened ITV’s regional news obligations, the compulsion to keep going isn’t so strong.

But it’s still not clear whether, in closing ITV Local as a separate operation, ITV is winding down the idea completely. The regulatory framework is in flux, with Ofcom also having supported the creation of new, digital local news providers. The vehemence with which BBC’s local video proposals were met, and struck down, last year suggests there is still room for a commercial operator in the space – perhaps as a tie-up with local newspapers or even the BBC itself, which continues to be interested in the idea.

SDN: The Freeview multiplex operator may be a valuable target, but not necessarily at the £134 million ITV paid in 2005. Carrying 25 digital terrestrial channels, including some from the UKTV portfolio – which Virgin Media (NSDQ: VMED) is reportedly wanting to sell its 50 percent stake in – there’s ample opportunity for some a bidder like radio transmitter operator Arqiva, which last month demonstrated a commitment to acquisitions by buying ITV’s own JFMG outside broadcast spectrum unit for £1 million. With the future of Virgin Media’s UKTV partner BBC Worldwide also in the gods, SDN’s story may yet play out in interesting ways as the Digital Britain report rolls to a close.

Online: In abandoning its non-core digital activities, ITV is focusing on its main proposition. Inspired by the success of the BBC’s iPlayer, it’s lauding big gains seen in its own on-site VOD views, suggesting the site will primarily be used to show the same live and catch-up programming we see on our television sets. That’s despite Michael Grade’s “content-led” turnaround strategy last year promising new online video productions.

Now it’s fair to presume’s main purpose will be merely to re-air what goes out on the telly. It’s working for the BBC, which some in the industry say is also failing to meet the potential for original web content, but it’s a world away from where ITV expected it would be back in 2005…