A turning of the tide for commercial broadcasters

There is reason to believe that the events of the last fortnight signal a watershed in the fortunes of UK broadcast media.

We’ve seen Google becoming dangerously enmeshed in a prospective European Commission anti-trust inquiry scoped around the way it conducts its search business. Maybe that won’t force the world’s most dynamic media company (see below) to divulge its innermost algorithmic secrets, but it certainly threatens to blunt Google’s aggressive energy in a war of attrition with the regulatory authorities.

We’ve seen Mark Thompson, director-general of the BBC, deliver a keystone policy initiative that will affect the strategy of the corporation for years to come. Like the Emperor Hadrian, Thompson has declared that the era of imperial expansion is over, and that from now on he and his successors will have to operate from behind carefully defined boundaries.

And we’ve seen definite signs of a turnaround at ITV, the bellwether of UK commercial television. Against a picture of lessening debt and a more upbeat advertising outlook, new chairman Archie Norman used the announcement of the broadcaster’s annual financial results as a platform for laying out a lucid and surprisingly detailed vision of where he saw the company going in the next five years. However, the really important news for ITV came from elsewhere.

The single biggest constraint to ITV’s commercial recovery is Contract Rights Renewal (CRR) – an issue that is being comprehensively investigated by the Competition Commission. Ed Richards, chief executive of Ofcom, the principal broadcast regulator, used the FT Digital Conference (the same platform as Mark Thompson, incidentally) to indicate a change of heart on the policy that has manacled ITV ever since the Carlton/Granada merger in 2003.

Not only that, he hinted that the EU restrictions which effectively limit ITV to eight minutes of advertising around hit shows would be relaxed. “We are looking to see if there are justifiable reasons to keep advertising restrictions. If there is not a public interest reason for keeping them, we will get rid of them,” said Richards.

To conceive of Google as a bunch of anoraks who have wandered into media distribution via domination of the search market (their preferred self-portrayal) is to profoundly misunderstand its true significance.

It is difficult to underestimate the importance of this change of sentiment. In the short run, CRR has been manna from heaven for advertisers. It has guaranteed access to what is still the only rapid-build awareness channel, ITV1, at prices often ruinous to its owner. More importantly, however, it has had a number of unintended consequences damaging to the wider television ecology.

This is not the place to rehearse the argument of Rupert Howell, ITV’s managing director of brand and commercial, put forward in these pages a few weeks ago (MW 25 February). Suffice to say he does make one very persuasive point for the prosecution – CRR has had a numbing effect on the production of original first-run programming. The bias has been towards cheap programmes that avoid risk but guarantee targets being met.

The repercussions of this are to be found in reduced output from the independent production sector and in an influx of subsidised foreign programmes. Moreover, in a downward spiral of programme quality, CRR encourages ITV’s competitors to do the same – match inexpensive mediocrity with inexpensive mediocrity.

To pull back the focus to the bigger picture, what I’m suggesting are the first indications of a rebalancing of forces in the UK broadcast sector.

Crucially, Richards has realised that continuing to apply restrictive practices, which over-segment the broadcast market and fail to acknowledge its transforming nature, only benefit Google.

Google has had newspapers for breakfast; now it looks to be lining up broadcasters for lunch. That’s not just my opinion. Here’s Archie Norman articulating the same thought: “It is important everybody knows that creating a more liberalising agenda is important for us and the rest of creative Britain too… We are leaving the door open to major aggregators like Google to become the second or third major broadcaster in Britain and they are generating no content here at all.”

Norman is echoing the same underlying point made at the FT Digital conference by WPP chief Sir Martin Sorrell. To conceive of Google as a bunch of anoraks who have wandered into media distribution via domination of the search market (their preferred self-portrayal) is to profoundly misunderstand its true significance: “Google is a media owner, not a technology company.” Brussels may divert some of Google’s corporate energy for now, but a change in regulatory attitude will be a more salutary safeguard.

ITV and the commercial sector will also be aided by the BBC’s strategic retreat. No longer is “reach” the BBC watchword, instead the talk is of “enriching the public space” and “listening to the concerns of our competitors”, to quote Thompson. What this means in practice is that the BBC will row back from a number of areas of keen interest to the commercial sector.

No longer will there be an aggressive head-to-head with Channel 4, for example, over 17- to 18-year-olds. BBC Online will find itself 25% worse off. Expenditure on sports rights will be significantly reduced, which must ease competitive pressure. BBC Worldwide will be focused abroad, not at home – and the magazines will eventually go.

Some say that Thompson is merely making a virtue of necessity; the BBC’s £3.3bn annual licence fee will be cut whatever he does, especially if the Tories gain power. But the important point is that Thompson has nailed his colours to the mast by earmarking the £600m savings he anticipates for investment on better-quality programmes in a narrowly defined area. Nothing ITV can really quibble about there, I guess.