Freeze on ITV ad price gives us all the shivers

The competition watchdog must this month throw out the historic pricing cap that threatens to dumb down all of commercial television

Rupert Howell
Rupert Howell is managing director of brand and commercial for ITV

Back in 2003, despite embarking on a war with Iraq, the Labour government was enjoying high approval ratings and Manchester United was the second richest club on the planet – rather than the second richest club in Manchester.

On television, State of Play was making politics look glamorous and Martin Bashir was making Michael Jackson look uncomfortable. It was all about Location, Location, Location not Repossession, Repossession, Repossession. Facebook was a twinkle in Mark Zuckerberg’s eye, YouTube was not even on the horizon and “tweeting” was strictly for birds.

This all seems a very long way away from where we are today.

In October that year the Carlton-Granada merger was agreed and the Contract Rights Renewal (CRR) remedy was put in place, effectively freezing advertising contracts at 2002 levels. Seven years on and the market we operate in is also unrecognisable.

Since 2003 the number of digital households has doubled to more than 90%, many with access to nearly 300 digital channels. At the same time, internet advertising has grown at an unprecedented, and unforeseen, rate. In 2003 ITV’s revenue was 20 times that of Google. Last year, Google’s UK sales totalled £1.65bn compared to ITV’s £1.2bn.

So what does this mean for the creative industries we work in? It means reduced investment in first-run UK programming. It means that distinctive, original programming is in danger of being edged out by cheaper, lowest common denominator television across all the UK’s commercial networks. And ITV has a further disincentive to invest. Why? Because CRR actively encourages ITV to shift its investment towards cheaper programming that can be guaranteed to deliver large audiences, at the expense of costly or diverse programming.

By linking revenue to ITV1 audience share CRR makes ITV shift investment towards programming guaranteed to deliver the largest audiences at the lowest cost. It makes us more likely to invest in daytime viewing over peak viewing, it makes us more risk-averse and it forces us away from investing in programming that delivers targeted impacts.

And, besides no longer being necessary to ensure market regulation, CRR encourages our competitors to do the same. This is one of a number of unforeseen, knock-on effects of the rules on other commercial channels and the independent production sector as a whole. Principally, it punishes ITV for investing in high quality UK content at a time when competition from unregulated, overseas operators is eating into ITV’s ad revenues.

That’s not just bad for ITV, it’s bad for advertisers too. And we know that some advertisers agree with us because they’ve told us so. But unfortunately that’s not what they’ve told the regulatory bodies who might have been in a position to offer some relief.

This week, the Competition Commission enters into the final phase of its review of the CRR undertakings. ITV remains firmly of the view that CRR is outdated, given the changed market conditions in which we all operate.

We’re not daft. We know that CRR has benefited advertisers in the short term. But they understand as well as we do the long term effect: ITV will not be able to continue investing in the large scale and diverse audiences that advertisers want.

In its review of CRR, the Competition Commission invited proposals of alternative remedies which might replace CRR. ITV continues to argue that the protection offered by CRR is disproportionate and unnecessary in today’s market. However, it has engaged fully with the Competition Commission’s process and has put forward a fully workable alternative, the Rules for the Protection of Advertisers (RPA), full details of which can be found on the Competition Commission’s website.

In short, RPA would continue to protect advertisers’ share of broadcast in relation to ITV’s performance and in terms of overall discounts. And clients would still have recourse to an adjudicator in the event of disputes.

But it would also allow a level of flexibility appropriate to a mature and competitive market. The rigidity of CRR forces ITV1 to be inflexible. It doesn’t allow us to work with agencies to develop innovative ways to do deals. It doesn’t allow the best negotiators and smartest agencies to benefit. RPA addresses these issues by removing some of the dynamic inefficiencies that have been an unintended consequence of CRR. 

The world has changed irrevocably since 2003. But some things remain unchanged. Advertisers and broadcasters still want high quality, diverse programming that reaches valuable audiences. We should be working together as an industry to make sure that we can still deliver.

Rupert Howell is managing director of brand and commercial for ITV

What is CRR?

Contract Rights Renewal (CRR) is one of the first “hot potatoes” for ITV chairman Archie Norman and incoming chief executive Adam Crozier.

CRR was adopted in 2003 to ensure that advertisers and media agencies were “no worse off” after the merger of Granada and Carlton.

At the time, the Competition Commission said the merger “would have an adverse effect on future competition for the sale of advertising airtime and so might… operate against the public interest”.

CRR links ITV1’s past audience figures, measured as its Share of Commercial Impacts (SOCI), to its advertising rates, specifically on advertising agencies’ so-called “roll-over” contracts.

In September last year, the Competition Commission published a provisional decision which ruled that the CRR system should remain in place, but it asked respondents to propose variations and give views on a proposal to widen the definition of ITV1 to include a possible ITV+1 channel

The commission’s final decision on the review is expected to be announced at the end of this month.

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