Yes, but no, but yes… the itv merger dilemma for advertisers

ITV’s merger proposal would break all the rules. But is this melodrama just a cunning ploy to sneak the real solution in through the back door?

The answer is both no and yes. No, because although there are a number of attractive and relatively uncontroversial backroom and production synergies to be had, ITV would inevitably emerge as the dominant force in a new outfit controlling 60% of the UK TV advertising market. Advertisers might reasonably be expected to mutiny at such a prospect. In any case, waving through such a merger involves tearing up the regulatory rule book. BSkyB would have excellent grounds for litigation against a regulator whose mantra often comes over as “anything but Murdoch”.

ITV executives are aware that this initiative, taken at face value, is a non-starter. The company has been careful to assert that it is only one of a “number of radical proposals” intended for consideration within Lord Carter’s Digital Britain report, out later this year. But ITV is deadly serious. The underlying suggestion is that the organisation is some sort of national sacred cow, rather like RBS or Vauxhall, which must be preserved at all costs from the hecatomb of economic catastrophe, even if that means bending the rules.

Two questions. Is this kite-flying just self-serving melodrama? And would the UK broadcast ecosphere be immeasurably impoverished if ITV were, in fact, to collapse, or pass into foreign ownership? Well, there’s no doubt that ITV’s state of health is deteriorating with alarming and unpredictable speed. The annual results, out this week, paint a grim picture by any measure: profits (or lack of them); declining audience; advertising revenue in freefall; a digital strategy in tatters; a pension fund falling into uncontrollable deficit; another rash of painful redundancies; and perhaps most seriously of all – given executive chairman Michael Grade’s (pictured) strategic priorities – deep cuts in the programme budget. If the Government and Ofcom are not rattled by Grade’s coded message, they certainly should be by the one en clair.

How much should all this matter to those who – like advertisers – are not immediate stakeholders? The answer is ambivalent. ITV may not have committed the hubristic folly of an RBS or HBOS, but some of its present woes are definitely self inflicted. Any sympathy from advertisers will, therefore, be strictly tempered by pragmatism.

Yes, advertisers continue to value a strong ITV. The big brands still see ITV1 as the only viable way of creating rapid build in a mass market. All right, there is the alternative media schedule; but as Dr Johnson used to say of a dog on his hind legs, “It is not done well; but you are surprised to find it done at all.” Nor, in principle, do they object to £1bn a year of “their” money being spent on the programme budget. What they do resent is the way the budget has, in their opinion, been squandered.

Quite rightly, they are sceptical of ITV’s motives in launching (or leaking) its “radical proposal”. They see this as a covert means of bouncing Ofcom into repealing the corporate straitjacket that is contract rights renewal (CRR).

This may have cramped ITV’s growth since its introduction in 2003, but it has also saved advertisers an estimated £1bn. Nevertheless, they are prepared, so their representative body ISBA says, to compromise. “Old” CRR, with its exclusively downside kicker, may well be past its sell-by date. “Son” of CRR, which ISBA hopes to see implemented this year, should reward performance with an upside kicker as well. What advertisers will not contemplate is letting the gorilla out of its cage without a keeper.

Talking of over-sized gorillas, there is another, more cynical, reason why advertisers should put their weight behind a robust ITV: the BBC. Despite superficial appearances to the contrary, the BBC, with its recession-proof budget, is having a good year. Unlike the commercial sector, it has got its digital strategy largely right and seems increasingly unconstrained by its traditional Reithian remit merely to inform, educate and entertain.

At this point we must factor in the parlous state of Channel 4’s finances, and the inevitability of reform around its public service broadcasting commitments. Advertisers want to preserve the “nice, discrete” market that is C4, but recognise that its present commercial model is not viable. The original preferred solution – a merger between BBC Worldwide and C4, promoted by Carter – no longer seems a goer. Though it would curb the BBC’s commercial elephantiasis, the figures do not add up.

Next up is the Five/C4 merger idea, mainly touted by Five and for good reason. Five is a troubled tadpole in the UK broadcasting pond. It does not have the weight to provide a solution to the commercial sector’s problems. Furthermore, advertisers baulk at brand immiscibility: it would be like mixing oil and water, they say.

So we can see, in effect, what a cunning ploy ITV’s three-way merger plan is. When you have discounted the impossible, what remains, however improbable, must contain the solution. Unfortunately, it is not a solution to which advertisers will ever, willingly, subscribe.

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