Serious blow for BBC as Grade goes over to main rival ITV

London Briefing/Fiona Walsh:Who in their right minds would risk their reputation joining a company in such a state of disarray as ITV? That was the question I asked last week, and now we know the answer: in a stunning coup, ITV has poached BBC boss Michael Grade to be its new executive chairman.

It is an extraordinary development in what has become an extraordinary saga at ITV in recent weeks. Indeed, events at the ailing commercial broadcaster are rapidly falling into the "You couldn't make it up" category.

Three weeks ago, cable television giant NTL burst onto the scene with a £5 billion bid for Britain's biggest commercial broadcaster. A week later, James Murdoch's BSkyB followed up by launching a dramatic raid on ITV shares, shelling out almost £1 billion to snap up a 17.9 per cent stake.

The bold move sent shockwaves through the British media industry - just as the Grade appointment has done - and was widely seen as an attempt to derail a bid for the business. It effectively blocked any chance of ITV merging with NTL, soon to be renamed Virgin Media, whose largest shareholder is Richard Branson.

Murdoch and Branson will have been as stunned as the rest of the media industry at this latest twist to the ITV plot. Although he has a lifetime of experience in broadcasting, the name of Michael Grade was never even whispered as a potential successor for Charles Allen, who quit as ITV chief executive four months ago.

It had simply been assumed that the charismatic, cigar-chomping former theatrical impresario was wedded to his relatively new role at the BBC, which is currently in negotiations with the government over its licence fee.

For the BBC, Grade's loss is a serious blow and could hardly have come at a worse time. Senior executives at the corporation were said to be incandescent with rage when they learnt of his defection.

Grade has headed the BBC for the past two and a half years and was appointed with a brief to rescue the organisation following the resignation of its chairman Gavyn Davies and director general Greg Dyke in the aftermath of the damning Hutton report.

Grade has been pulling the corporation together since that devastating verdict and, along with director general Mark Thompson, is currently heavily involved in increasingly ill-tempered licence fee negotiations.

The BBC is pushing hard for an inflation-busting increase, while the treasury is resisting. It is difficult to see where Grade's departure leaves the negotiations but it is unlikely to have done the BBC any favours.

Grade certainly has the experience for the job - he is a former director of programmes for London Weekend Television and was chief executive of Channel 4. And there is a family connection which may have influenced his decision, at the age of 63, to take on what has to be the toughest job in broadcasting - his uncle, Lew Grade, founded the old ATV business which is now part of ITV.

Among Grade's challenges will be to restore the creativity to ITV's programming schedules; to shore up advertising revenues and to stem the decline in audience numbers while at the same time playing catch-up in the digital revolution.

He will also have to deal with ITV's newest, and largest shareholder, BSkyB. And that might just be the toughest challenge of all.

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Fears that consumers will refuse to embark on their usual festive spending frenzy are as traditional at this time of year as the television advertising blitz.

John Clare, chief executive of the Dixons group, DSG International, Britain's biggest electricals retailer, warned last week that run-up to Christmas would see the usual "white knuckle ride" for the stores sector.

For once, though, the fears could be well-placed, with at least one retail analyst warning that December 2006 could turn into the worst Christmas in quarter of a century.

Sales at some clothing retailers - M&S is a notable exception - are said to be down by as much as 20 per cent over the past fortnight and there is talk of poor trading at companies such as WH Smith, Boots and Woolworths.

Fiona Walsh writes for the Guardian newspaper in London