Pull out of Project Kangaroo, broadcasters told

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ITV and Channel 4 should consider pulling out of Project Kangaroo because it will cost them £30m next year, a report says.

The broadcasters need to focus on riding out the immediate economic downturn, the report by Enders Analysis argues.

It estimates that Project Kangaroo has already cost its joint venture partners BBC Worldwide, ITV and Channel 4 more than £25m in staff costs, development and online programme rights.

The online TV joint venture will cost ITV and Channel 4 up to £15m each next year, it estimates.

Enders argues that the project's delayed launch, the economic downturn hitting online ad revenue and the serious financial issues facing public service broadcasters (PSBs) mean that ITV and Channel 4 should consider pulling out.

"The market for internet video advertising, on which the commercial revenues from Kangaroo would chiefly depend, is tiny and developing slowly," said the report.

"Revenues may not exceed the cost of Kangaroo for some time. In summary, the potential advertising rewards from online video are far lower than Kangaroo's backers imagine. Therefore it can certainly wait for a year or two whilst the commercial PSBs focus on their survival."

Ofcom has forecast that public service broadcasters will face a funding shortfall of up to £235m a year, Channel 4 alone says it has identified a £150m hole in its funding.

The report said: "All but a handful of companies in the world are putting on ice similar projects for expenditure, or expenditure on causes such as training, so why not Channel 4?"

The channel lost up to £10m on its aborted attempt to become a player in the digital radio market.

The report argues that Channel 4 and ITV should focus on the BBC's offer of the free and open use of its iPlayer.

The plan, which Enders says is dubbed project Marquis, was one of a number of "partnership proposals" outlined by director general Mark Thompson in its submission to Ofcom's public service broadcasting review earlier this month.

"Their interests may be better served by collaborating with the BBC over the iPlayer, although the Competition Commission's findings [into Project Kangaroo] indicate strongly that and video on demand venture from the UK's leading content providers will be subject to intense scrutiny. Even Marquis might not find it so easy to hop from the start."

Enders argues that project Marquis has advantages such as the strength of the iPlayer brand, the focus on the hugely popular catchup TV element and reduced investment requirements.

Project Kanagroo has been mired in a time-consuming Competition Commission investigation into concerns it will dominate the nascent UK online video market.

Late last week the partners submitted proposals to the Competition Commission to water down the service in a bid to secure approval.


Source:MediaGuardian