Blurred visions impede resolution of ITV dilemma

As Carlton and Granada press for approval of their merger, Torin Douglas questions whether a remedy to the competition and monopoly issues can ever be achieved

As Carlton and Granada make their final appearances before the Competition Commission this week in pursuit of their ambition to merge, the approval process has taken on the appearance – if not the entertainment value – of Fantasy Football.

Does anyone seriously believe that a way can be found to solve the advertising competition issues without undermining the whole basis and benefits of a merger?

The Competition Commission has been casting round wildly for possible solutions. Among its “hypothetical remedies” have been: a complete ban on the merger (which is the sort of remedy in which the patient ends up dead); the hiving off of both companies’ advertising sales operations to be run independently (a remedy which either means they have no control over their airtime sales, or the sales houses are not truly independent); a code of conduct to protect the smaller ITV licensees and independent production companies (which doesn’t help ITV’s rivals, like Channel 4 and Channel 5, which see themselves as the biggest potential losers); and other “structural or behavioural remedies” that any interested party can come up with.

The commission has now come up with a truly radical “structural or behavioural remedy” – banning the share deals which have underpinned the television sales market for as long as any of the current sales or buying directors has been in the business. Under such deals, advertisers and/or agencies are rewarded for committing a certain percentage of their budget to a particular sales house or station. Share deals have long been criticised because they impose a lack of flexibility on airtime trading, but most media buyers regard their abolition as a total non-starter. Even though they are overused and sometimes abused, and often impede creative media negotiations, if there weren’t such a buying mechanism you’d have to invent one.

“If a workable alternative to share deals existed, it would have been put in place long ago” says MediaVest chief executive Jim Marshall, who chairs the Institute of Practitioners in Advertising’s Media Futures Group. “The commission seems to view the whole TV trading environment as rather mysterious, but it has been proven to work and it is hard to see what you could replace it with.”

No one can accuse the commission of not thinking out of the box. But its inexperience of the television and advertising markets seems to have been exacerbated by its apparent reliance on advice from the City, which has never understood the intricacies of the airtime business.

The City wants a deal between Carlton and Granada because it would cut costs and sort out the management of ITV, which has been dogged by infighting between the two companies. The fact that the merger would give ITV an even greater stranglehold over the advertising market doesn’t seem to worry the analysts.

Stranglehold? But surely – you point out – ITV’s share of the advertising market is declining, and has been for years, along with its share of the television audience? It now has just 52 per cent of the TV ad market, a far cry from the figure even a few years ago, let alone the days when ITV really was a monopoly – or a series of local monopolies – and a franchise was “a licence to print money”.

In fact, 52 per cent is still comfortably a monopoly under competition law. But ITV’s real monopoly lies in the fact that it’s the only channel on UK television that can offer advertisers large audiences. Even in its shrunken state, ITV’s biggest ratings-winners dwarf anything Channel 4, Five or BskyB can offer. If an advertiser wants to reach 10 million viewers at a time, there is only ITV – and if ITV sales houses are both owned by, or working on behalf of, one giant company, that is where they will have to go.

Some TV executives are questioning how far the merger will actually improve matters for ITV. They say the problem is one of attitude on the part of Carlton and Granada, which still haven’t come to terms with the way television has changed now that 40 per cent of the population has multichannel TV. If they had, these executives say, you wouldn’t need a merger, merely sensible co-operation between two large but separate companies.

That view is challenged by the former culture secretary Chris Smith, the architect of the Communications Bill still wending its weary way through the House of Lords. Writing in the Financial Times, he argued that a merger would have economic and creative benefits. “A single ITV would have a clearer presence internationally and could be more active in selling programmes and formats round the world,” he wrote.

“There are also important creative reasons for going ahead. However enlightened the management of the ITV Network Centre may be, it is inevitably difficult for bold and daring creative programme decisions to be taken, simply because of the bartering process that must be undertaken. A single ITV would solve the problem.”

If only it were that easy. Some say the bartering will last as long as Charles Allen and Michael Green both remain on the scene.

Torin Douglas is media correspondent for BBC News

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