Ad industry slams ITV merger ruling

Advertisers offer lukewarm support for ‘behavioural’ solution to combined Carlton/Granada sales power

The Institute of Practitioners in Advertising (IPA), commercial broadcasters and leading media agencies have expressed “disappointment” at a decision to allow the &£4.2bn Carlton and Granada merger to go ahead with advertisers being protected only by behavioural restrictions placed on a united sales house.

The Incorporated Society of British Advertisers (ISBA) has taken a more conciliatory approach to the announcement by trade secretary Patricia Hewitt yesterday (Tuesday), saying that it welcomes the fact that the merger has not been allowed to proceed unchecked.

One ISBA member, Procter & Gamble head of UK media Bernard Balderston, says: “We are pleased that the Competition Commission and the department of trade and industry have recognised that advertisers are a major issue in the question of whether Carlton and Granada should merge. I think that the remedy being put in place needs a lot of detail to be worked through. Until that is done, we can’t be sure how watertight it is going to be.”

While Hewitt’s decision has been dismissed by many television media buyers as “unworkable” and “ludicrous”, Carlton and Granada have seen their share prices rocket on the back of the most favourable conditions they could have expected.

Hewitt found that the merge might act against the public interest and consequently imposed various remedies to protect advertisers and the two remaining independent ITV companies.

The IPA had been lobbying hard for structural restraints to be imposed on any merged ITV company, through the divestment of Carlton’s and Granada’s sales houses.

But Hewitt, following the recommendations of four of the five Competition Commissioners, came down in favour of a behavioural remedy by rolling over existing contracts or – as the commission calls it – a system of contract rights renewals (the CRR remedy). This would give ITV customers the fall-back option of renewing the terms of their 2003 contracts for the duration of the remedy – a minimum of three years – with the exception that where a contract specifies a share of broadcast, this share will vary in direct proportion to ITV’s share of commercial impacts, subject to a cap at the initial share.

Carlton and Granada have to negotiate a set of undertakings that would serve to implement this remedy with the Office of Fair Trading by November 7, so that they can be in place for the next round of TV negotiations – scheduled for the last two months of this year.

ITV joint managing director Mick Desmond claims the merger will mean a stronger ITV, which is good for advertisers. He says: “The key issue now with the behavioural remedy is to ensure that we have a mechanism that takes away the fears advertisers have.”

TV buyers doubt that the undertakings will be agreed by the deadline, as they necessitate consultation with the industry at large. They fear that negotiations could drag on to the beginning of next year. The undertakings will be enforced by an independent adjudicator, or a small panel, to be selected by the Independent Television Commission. Industry pundits have already thrown up names such as John Billett of Billetts Consultancy or Jim Marshall, chairman of Starcom MediaVest, who is also chairman of the IPA’s Media Future Group.

TV buyers also fear that those advertisers that wish to change their buying requirements will not have the protection of past agreements and will be forced to negotiate fresh terms with an ITV that can abuse its dominance.

Marshall says: “There are all sorts of loopholes. The statement doesn’t address changes in target audience, changes in strategy, changes in brand portfolio and a whole host of other things.”

Zenith Optimedia head of TV buying Chris Hayward says: “We are disappointed with the decision. From a production and viewer point of view, one ITV makes sense, but in terms of sales there are some elements that need to be resolved. The roll-over mechanism does not protect advertisers. It is restrictive and does not allow for evolution.”

Carat has taken a different view to the IPA, saying that the CCR remedy is in principle “workable” and “pragmatic”, subject to the details.

Some commercial broadcasters are also concerned that the CCR system will only serve to protect ITV’s 51 per cent share of the TV advertising market, forcing other commercial players to compete for the remaining share through viewing figures. Paul Curtis, managing director of Viacom Brand Solutions, says: “If advertisers want to spend less with ITV there will be a significant penalty. ITV has the back-stop of this deal and the only way we can change that is through changes in viewing.”

Usually outspoken critics of a single ITV sales house, Channel 4 sales director Andy Barnes and Five deputy chief executive Nick Milligan were both unavailable for comment as Marketing Week went to press.r

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