Our take...
The Competition Commission ordered BSkyB to reduce its investment in ITV in 2007, on the grounds that BSkyB would be in a position to influence decisions by ITV management in areas where the pay-TV platform and the free-to-air broadcaster compete, including the raising of funds (for example, through a share issue), investment in original content or acquisitions and development of high definition services. BSkyB appealed against the ruling but failed to persuade the government or the Competition Appeal Tribunal to overturn the original decision. However, Virgin Media also failed in its attempt to force BSkyB to sell its entire share holding.

BSkyB's swoop on ITV – under then chief executive James Murdoch – coincided with a move by Virgin to potentially buy the whole of the broadcaster. Those discussions were dropped as a result, although it is by no means certain that Virgin would ever have been successful.

However, ITV's share price declined steeply as it faced audience fragmentation and an unprecedented downturn in the advertising market - to as low as 20p a share. Although the share price has rallied (particularly after a strong last quarter of 2009), it remains low and BSkyB has not been able to delay a sale long enough to avoid a huge loss (the November 2006 purchase was made in cash). However, it has been able to cushion the impact of the ITV deal on its own share price: in its 2008 financial year, BSkyB took an impairment loss of £616m and another £191m in 2009.

By retaining a stake in ITV, BSkyB could simply be looking to benefit from a further increase in the ITV share price. With a general election in the UK this year, a change of government and a potentially more BSkyB-friendly regulatory environment could be another factor.

ITV, with a new management at the helm, is poised to benefit from a recovering UK advertising market and from the cost cuts introduced under the previous regime. However, it still faces a strategic choice about whether to reduce its future dependence on the cyclical and volatile advertising business by converting some of its channels to pay. BSkyB, as the leading pay TV platform in the UK, holds the key to the success of this strategy.