Advertising industry on alert over pounds 7bn Carlton-United merger deal

The proposed merger between Carlton and United News & Media has sparked alarm among agencies and advertisers who fear that a company with a 60 per cent share of the ITV franchise could restrict advertising practices.

The proposed merger between Carlton and United News & Media has

sparked alarm among agencies and advertisers who fear that a company

with a 60 per cent share of the ITV franchise could restrict advertising

practices.



To seek assurances that fair competition would continue if the pounds 7

billion deal goes through, and understand how the two companies would

operate in the future, representatives from the Institute of

Practitioners in Advertising and the Incorporated Society of British

Advertisers will meet with the heads of Carlton and United on

Friday.



While a merger between Carlton and United would not breach the 1996

Broadcasting Act, which restricts broadcasters from controlling more

than 15 per cent of the television audience, it would exceed previous

undertakings by media companies in terms of share of national

advertising revenue. The combined group would have over 36 per cent of

NAR, which would exceed the current limit of 25 per cent.



The merged company would also push the largest ITV player, Granada, into

second place.



The Office of Fair Trading is holding a statutory review of the

restriction on ITV companies, which it expects to complete by February.

Last August the IPA said it would push for the present limit to be

maintained. Unless the limit is relaxed Carlton’s TV sales operation and

United’s sales house, TSMS, will have to remain separate entities.



Bob Wootton, director of media services at ISBA, said: ’This particular

development would create an unprecedented trading block. There are only

seven sales points for TV; if this merger happens there will be just

six.



On the one hand this deal creates a merged company with an opportunity

to be big enough to stand tall on the world stage. But there are some

key local issues. It’s a sellers’ market and it’s heading more in that

direction.’



Advertisers recognise the benefits of the deal in terms of improved

programming and scheduling, but feel these are overshadowed by the

spectre of an advertising dominance. John Blakemore, the UK advertising

director of Smith-Kline Beecham, said: ’One thing all advertisers want

is a strong ITV.



But the other element is the airtime sales side. My position is that we

have a very reasonable rule in place and I can’t see any reason why it

should be removed.’



Graham Duff, chief executive of Zenith Media and a member of the IPA

media policy group, said: ’It’s not about the 25 per cent, but the

reasons why the figure was put in place, which was about competition and

having fair and reasonable access to ITV’s audiences.’



Referring to the creation of two separate sales houses to stay within

the 25 per cent limit, he added: ’I’m cynical about Chinese walls and

irrespective of whether relaxation will allow the creation of one sales

house or two operating under one ownership, the same assurances are

essential. We need to hear firsthand what Carlton and United feel is the

benefit because we have heard nothing.’



Competing TV companies have also expressed alarm at at the proposed

deal.



Nick Milligan, sales director of Channel 5, said: ’To have three sales

houses owned by two companies and to pretend they will not collaborate

is an insult to agencies’ intelligence. The 25 per cent rule must

stay.’



TSMS sent out letters last week to advertisers and agencies to reassure

them that practices would not change. In the letter Jerry Hill, chief

executive of TSMS, said: ’Integral to this is the continued operation of

both companies’ existing sales interests as independent and separate

entities, while the rules limit any one sale point’s share of the market

to 25 per cent.’



Martin Bowley, chief executive of Carlton Sales, argued that the merger

would create an improved trading environment for advertisers. ’There

will be more money on the screen and a more efficient ITV,’ he said. ’It

will create a faster and more fleet of foot ITV and means one less

in-fighter. It’s surely not in anyone’s interest to wait until ITV is

flailing around as a limp and spent force for that to be the catalyst of

consolidation. If you let that happen the peaktime audiences will be

long gone, and that’s not in anyone’s interests.’



The proposed merger has put Granada on its guard. A source close to

Granada said: ’From our perspective we can’t allow it to happen. Either

Granada will knuckle its way in and be a power broker in the deal, or it

will take United out. We can’t afford for the merger to take place or we

will be sidelined.’



The UK competition authorities are expected to make a judgment on the

merger during the next eight weeks.



Leader, p27.





UNITED NEWS & MEDIA



A more diverse media business than Carlton Communications, United News &

Media’s assets include Express Newspapers and the market research

company, NOP, as well as its ITV franchises.



United’s financial results for 1998 saw the company’s revenues at more

than pounds 2 billion with operating profits of pounds 321.6

million.



In the TV market, United owns Anglia and HTV and has an 80 per cent

stake in the South of England franchise, Meridian, and owns 29 per cent

of Channel 5. In the pay-TV market it has a stake in Rapture and owns a

third of SDN. Its TV sales house is TSMS.



United has a reputation for making high-quality programming such as

Touching Evil.



The company also owns The Express, Sunday Express and Daily Star.



Other media interests include United Productions, United Wildlife, the

animation studio Cosgrove Hall, Exchange & Mart, Daltons Weekly,

LineOne, Anglia Multimedia, ITEL and Visual Commun-ications Group.



It owns the business publishing company, Miller Freeman.



Lord Hollick, chairman of United, said: ’Bringing free and pay TV

programme-making and the internet together in one company creates huge

potential.’





CARLTON



Carlton Communications is the UK’s biggest free-to-air broadcaster,

incorporating Carlton Television, Central and Westcountry TV and holding

20 per cent stakes in Meridian, GMTV and ITN.



The company reported sales of pounds 1.97 billion for its financial year

to September with profits at pounds 152.4 million. It is the UK’s

largest free-to-air broadcaster, covering 38 per cent of the

population.



Carlton also plays an important role in the digital TV market, with a 50

per cent stake in ONdigital, which it co-owns with Granada. A merger

with United would align the interests of the big three ITV companies and

those of ONdigital.



It has created popular TV shows such as Inspector Morse and Peak

Practice.



Carlton owns Carlton Cinema, the film channel on ONdigital, and the pay

TV channels, Carlton Food Network and Carlton Kids.



Other media interests include the UK’s biggest cinema sales house,

Carlton Screen Advertising and the three production companies, Carlton

Productions, Planet 24 and Action Time. It also owns Carlton

International and Carlton Sales, as well as Carlton Online.



Michael Green, the chairman of Carlton, said: ’Bringing our businesses

together will strengthen ITV and contribute to the success of digital

terrestrial television.’



THE EFFECTS OF A MERGER



The merger of Carlton and United News & Media could see the disposal of

a number of assets by both parties. Analysts say that the sale of these

could lead to between pounds 2 billion and pounds 2.5 billion being

raised in extra revenue, leaving the merged company free of debt.



Carlton’s film processing and video replication unit, Technicolor, would

be likely to be sold which could raise up to pounds 1.3 billion.

Carlton’s digital arm, Quantel, would also be sold, alongside the

company’s products division, VCG and United & Advertising

Periodicals.



United would look to sell its non-core assets in Miller Freeman with its

online division, CMPNet, being spun off into a separate business.



It is unclear what will happen to Carlton’s stake in ONdigital because a

merger with United could allow Granada to buy out Carlton’s 50 per cent

stake in the venture.



A combined Carlton and United would create a company with a 14. 9 per

cent share of the viewing market. It would control over 36 per cent of

the UK TV advertising market.



The combined company would have revenues of pounds 4 billion and

operating profits of pounds 646 million.



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