Will Murdoch stake secure ITV’s future

BSkyB’s shock capture of 17.9% of the UK’s largest commercial broadcaster last week has pitted Sky chief executive James Murdoch against Virgin boss Sir Richard Branson, each casting himself as ITV’s “white knight”. Yesterday (Tuesday), in a further twist, the ITV board rejected a £4.7bn bid by cable company NTL.

Advertisers and agencies insist in public they have no problem “yet” with Sky’s holding – seen as a spoiler to stop NTL buying ITV – as long as it intends to stay “silent”.

Privately, however, many doubt Sky will sit on the sidelines – a view Branson is keen to exploit. He says the move is “seriously damaging to the interests of viewers, programme makers, artists and shareholders”.

One industry commentator adds: “Sky may not be asking for a seat on the board, but it will inevitably cast a long shadow.”

Virgin and NTL believe they have grounds to complain to the Office of Fair Trading under the 2002 Enterprise Act, which is designed to protect companies against any shareholder with a stake bigger than 15% from exercising “material influence” over the commercial decisions of a business. It has also approached media regulator Ofcom, which will investigate whether, under the 2003 Communications Act, Sky could influence ITV’s strategy.

Economies of scaleMost worrying, observers feel, would be any attempt to integrate the companies’ two sales houses. Ian Twinn, director of public affairs at the Incorporated Society of British Advertisers, says: “Sky seems to be saying that it is not involved for any reason other than benign ownership, which is fine. But if it wants to leverage sales, for example, across the two, then we would have very, very strong views about what we think would be anti-competitive behaviour.”

Sky shocked the Stock Exchange and industry commentators when it announced its £960m strike late on Friday. Branson’s Virgin Group is the biggest shareholder in cable company NTL, which only eight days before had launched a £5bn takeover bid for ITV – a deal that now looks almost impossible because of the size of Sky’s holding.

Procter & Gamble associate director of media Bernard Balderston says: “It is not a large enough share for Sky to unduly influence things at ITV but it does place Sky in a key position as far as future ownership goes. It clearly pushes back the possibility of a merger with NTL.”

Investment bank Credit Suisse agrees that the Sky stake makes a takeover by NTL, or by any other trade or private equity buyer, far less likely. But it believes Sky has paid too much, at 135p a share, for a stake that gives it no influence.

The deal comes at a difficult time for the commercial broadcaster, which has been struggling with the slowdown in the UK advertising economy and is battling to retain viewers on its flagship ITV1 channel amid increasing digital competition.

The broadcaster is also without a chief executive following Charles Allen’s resignation in August. The search for a successor appeared to grind to a halt following NTL’s approach.

Numis Securities media analyst Paul Richards believes Sky’s move is good news for ITV. “Murdoch putting £1bn of capital to work is one hell of a vote of confidence in the business,” he says, adding that the search for a chief executive could now continue with confidence.

“If I were a potential chief executive I would feel more comfortable now that there is a supportive, long-term shareholder standing by ITV, and less of a likelihood that I would be leaving within months.”

Positive spinIt is the chief executive situation that advertisers most want to see resolved, according to Walker Media broadcast director John Horrocks. “My view is as Murdoch’s view,” he says. “People have been overcooking how badly ITV is doing. Yes, it is suffering at the moment. But it is not far off the bottom and there is certainly not the doom and gloom that everyone has been trying to paint.”

Irrespective of ITV’s eventual ownership structure, advertisers want increased programming budgets, stability and a clear, consistent strategy. Balderston adds: “We cannot have yet another change of direction.”