ITC primes political timebomb with 90m Treasury bonanza

All things considered, the politicians were remarkably restrained about ITV’s generous treatment by the Independent Television Commission the other day.

Yes, I know Gerald Kaufman, chairman of the Culture Select Committee, said it was a new milestone in the dumbing down of Britain. And John Major described it as “a grave mistake” and Paddy Ashdown made clear his disapproval.

But that was about the ITC’s decision to let ITV move News at Ten. They didn’t turn a hair when the regulator announced that, at the same meeting, it had also decided to cut 90m off the annual payments ITV makes to the Treasury.

Had Mr Kaufman known this when he learned of the death of News at Ten, one dreads to think what further invective he might have heaped on the heads of the hapless ITC. Yet by the time the regulator made this second major announcement of the week, he and the other politicians had apparently lost interest.

There was no ready-reckoning of how many hospitals or nurses that 90m was paying for. Or schools and teachers.

Both Tony Blair and Culture Secretary Chris Smith had made it clear – in advance and in public – that they would prefer News at Ten to stay where it was. Yet neither seems to have bothered to let the ITC know they would also prefer the Government to hang on to that 90m. And nor did the “Iron Chancellor” Gordon Brown.

Perhaps they thought the impoverished ITV companies were as good a cause as any for the money. If so, the Granada Group results – out the same morning – might have alerted them to the fact that the wolf isn’t quite at ITV’s door yet.

Not only were Granada’s TV profits up 36 per cent, at 255m. But the company proudly announced that its advertising revenue had risen 12 per cent in the second half and that the scrapping of News at Ten would generate “tens of millions of pounds” in extra ad revenue. Add in the 30m-per-year cut in its Treasury payments (from Yorkshire, Tyne-Tees and its stake in GMTV) and it was little wonder the Granada share price rose so substantially.

So what was the thinking behind the ITC’s decision to reduce most of the ITV companies’ Government payments?

It was the final acknowledgment that the infamous blind auction introduced by the Thatcher government had thrown up enough anomalies to destabilise the ITV system and condemn at least one company – GMTV – to a life without profit.

GMTV had put in a cash bid 20m a year higher than that of the incumbent breakfast station, TV-am, so taking away its licence and putting the TV-am staff out of work. Since then it has made a profit in only one year and its losses have steadily accumulated. Some might say this proved that TV-am’s managing director Bruce Gyngell was right and GMTV and the ITC were wrong.

The ITC’s solution was not to say “Come back Bruce, all is forgiven” – even he didn’t expect that – but to cut GMTV’s Treasury payments by no less than 30m a year. Former TV-am journalists were less than delighted at what they saw as GMTV being so well-rewarded for its ill-judged gamble.

The reason for this particular decision, according to the ITC’s head of economic affairs, Sheila Cassells, was that TV-am’s revenue forecast in its licence bid had been very similar to those of GMTV and the third applicant. And the ITC judged that it was the lack of advertising revenue that had been GMTV’s problem, not the size of its bid. She said none of the bidders had foreseen the extra competition posed by Channel 4’s Big Breakfast, cable and satellite, and Teletubbies on BBC2.

Now some might say – and indeed we did at the time – that this was exactly the reason the licence auction was so daft. The system invited large corporations to bet money on a rapidly-changing TV market that no one could forecast with any certainty – and, of course, to bet on which of the ITV regions would attract no meaningful competitors, allowing the incumbent to bid low.

Notoriously, Central Television won its licence with a 2,000 cash bid (plus a proportion of advertising revenue), while Yorkshire, Meridian and Carlton bid more than 40m each. (It was no surprise when Central said no thanks to the ITC’s new offer. Had it accepted, it would be paying 18m a year more.)

The potential for such anomalies was acknowledged in the legislation that set up the auction, for it allowed the companies to renew their ten-year licences after just six years, under new financial terms. This was to cope with any unforeseen circumstances that might drastically alter the TV market since the bids were calculated in 1991. And this time, instead of inviting blind bids, it would be for the ITC to calculate the value of the licence “as if it were put out to competitive tender”.

With hindsight, of course, this was an impossible task, given the huge disparities of the 1991 bids. But what the ITC did do – sensibly – was to rework the licence payments so they better reflected the financial strength of each company, by basing 75 per cent of the payment on advertising revenue, and only 25 per cent on the cash bids.

Maybe this was all too complicated for the politicians – unlike the scrapping of News at Ten, which everyone can understand. But once Messrs Kaufman et al wake up to the missing 90m, ITV and the ITC can surely expect yet another roasting.

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