City analysts are predicting that a proposed relaxation in the rules governing ITV1’s ability to sell advertising will not be enough to solve the broadcaster’s long-term financial issues.
Their comments come after the Office of Fair Trading last week recommended a “significant” relaxation of the contracts rights renewal (CRR) mechanism put in place in 2003 ahead of the merger of Carlton and Granada, and created to stop a dominant ITV.
Standard & Poor’s has expressed surprise at the “lukewarm regulator response to expectations of a CRR removal this year”, adding that ITV was further pressured by sharper-than-expected falls in UK advertising and potential debt repayment problems by 2011.
Following the OFT announcement, Standard & Poor’s has revised its predictions for ITV1’s 2009 advertising revenue, forecasting it would fall by as much as 13% rather than 7% previously stated.
Numis Securities media analyst Paul Richards says that while “ITV plc” is profitable, ITV1 barely breaks even. He adds that in most European countries a pre-eminent free-to-air broadcaster would be looking at making a double-digit operating margin.
Richards says: “It seems extraordinary that a pre-eminent broadcaster in one of the world’s leading economies, even at this stage of the cycle, cannot make a profit. That is indicative of excessive regulation.”
Many advertisers and agencies continue to argue that CRR should continue given ITV’s continued dominance in UK commercial broadcasting.