Advertisers slam £7.8bn merger

Some of the UK’s biggest spending advertisers are joining forces to oppose the proposed &£7.8bn merger of Carlton and United News & Media, which they criticise as premature and likely to create a restrictive TV advertising cartel.

The advertisers – which spend &£1.4bn a year through the ITV network – have demanded a meeting this Friday with Lord Hollick, who will be chief executive of the proposed new group, to state their opposition to the deal. They will argue the merged company’s share of TV advertising – more than 36 per cent – will be way above the recommended 25 per cent limit agreed by the ITV companies and Office of Fair Trading (OFT) in 1994.

The advertisers and their agencies – to be represented by trade bodies the Incorporated Society of British Advertisers and the Institute of Practitioners in Advertising (IPA) – say Carlton and United are premature in announcing the deal. They have pre-empted a review by the OFT into whether the 25 per cent limit should be changed. But it is possible OFT director-general John Bridgeman has given Carlton and United the nod that 36 per cent share would be acceptable.

Nick Phillips, director general of the IPA, says: “Our concern in the advertising sphere is the market power of the sales houses and the breaching of the 25 per cent ad revenue limit and the separation rules.”

The advertisers, which include multinationals such as Unilever and Mars, are likely to lobby the competition authorities to recommend they block the deal unless there are firm commitments that the merger will not diminish their power in negotiating the purchase of media airtime.

Media buying agency Media-Com TMB has issued a statement saying: “The current market main-tains a certain equilibrium that affords advertisers the opportunity to strike a balance between cost, quality and flexibility that would be lost without this level of healthy competition. So, in terms of the balance of negotiating power, we must have very real concerns about the effect of this deal on our clients’ businesses.”

Carlton and United say they plan to keep their sales houses, Carlton Sales and TSMS, as separate entities. A letter from TSMS chief executive Jerry Hill to advertisers and agencies says: “As the new company will exceed the present market cap for ad revenue, it is intended that the present two sales operations continue to operate separately while the existing regulations are in place – in effect business as usual.”

If the OFT allows the new group to hold 36 per cent of ad revenue, the new group is expected to merge the sales houses.

But advertisers worry that even if the sales houses are kept separate there could be collusion between them if they have a common owner. They doubt the effectiveness of so-called “Chinese walls” in stopping the two from sharing information.

Graham Duff, chief executive of Zenith and the member of the IPA media policy group with responsibility for TV sales practice, says: “If the sales houses were kept separate, I would want as many assurances as if they were joined in some way. Chinese walls can be remarkably transparent.”

If the two are kept separate, advertisers will call for them to have an equal share of the ad market, which would require substantial restructuring.

Friday’s meeting is likely to be a tense affair. Lord Hollick will be accompanied by chairman and chief executive of the “new” group’s TV business, Nigel Walmsley and Malcolm Wall, and Carlton Sales chief executive Martin Bowley. Advertisers will be represented by the IPA’s Phillips, ISBA’s Bob Wootton, Pedigree Masterfoods media manager Laurence Haselhurst and media buyers.

Those who support the deal – including some advertisers – claim it will strengthen ITV by reducing tensions between shareholders Carlton, United and Granada.

Extra resources would also be-come available to produce better programmes, increasing viewing and reducing the relative cost of airtime. It would also provide greater investment funds for the development of digital TV.

TSMS’ Jerry Hill told Marketing Week: “It is a fallacy to believe the TV market is not now a healthily competitive market with many choices for advertisers.

“The advertiser is a partner in this business. It’s scare-mongering to believe that the end result will be to turn on the advertiser.

“TV trading has been too adversarial for too long. It’s not customer-focused. We should be demonstrating we have a bus iness that has a value by provid ing clients who use it with a competitive edge.”

The merger of the two media companies, which control six of ITV’s 15 regional franchises, was announced last Thursday. Their share prices raced ahead on the news, although by Monday, Carlton’s had fallen below pre-announcement levels as concerns mounted that Granada would bid for United, leaving Carlton in the cold.

Granada chief executive Gerry Robinson says that eventually just one company will control ITV. But observers believe this development is at least five years away.

But it has opened the prospect of others entering the bidding.

If Granada bids for United, this would breach the last Broadcasting Act’s total TV audience share limit of 15 per cent. Granada would have to dispose of certain licences.

It has been rumoured that Pearson will bid for Carlton.

One source says: “This will either be remembered as a skilful and brilliantly executed deal, or as a disastrously handled mess that led to the demise of both companies.”

Additional reporting by Stephanie Bentley

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