Analysis: News Analysis - Something must give in Carat’s price stand-off with Channel 5/Carat has frozen business with Channel 5 in a fierce price battle

The stand-off between Channel 5 and Carat is almost business as usual for this time of year. Somewhere in the murky world of TV trading, there always seems to be a broadcaster and an agency unable to agree terms.

The stand-off between Channel 5 and Carat is almost business as

usual for this time of year. Somewhere in the murky world of TV trading,

there always seems to be a broadcaster and an agency unable to agree

terms.



Generally, as is the case here, the broadcaster wants a larger share of

the agency’s spend, while the agency wants a greater discount.



In this case, Channel 5, which attracts just under 9 per cent of

commercial viewing, wants a share of adspend as close to 9 per cent as

possible.



However, on average, it gets about 6 per cent from agencies.



To put a 9 per cent share Channel 5’s way, Carat might want a discount

against ITV station average price in advance of the 35-odd per cent most

agencies are getting.



This much is normal. What is more unusual is that the dispute should

have resulted in the agency boycotting the channel. Normally, goodwill

allows the continuation of last year’s deal, with the prospect of a

retrospective adjustment.



With Channel 5 and Carat, either all goodwill has been exhausted, or

they are so far apart that they can’t see a solution. Or both.



So what is going on? On the face of it, this is a disagreement over the

value of Channel 5’s airtime. Mark Craze, chief executive of Carat,

could argue that in a market which increasingly values the delivery of

light viewers, Channel 5, for which this is not a strength, should be

even cheaper that it is.



On the other side, Channel 5’s sales director Nick Milligan, who is

flying high with annual revenues of pounds 184 million, might be seeking

to reduce the airtime cost differential between Channel 5 and ITV.



But sources - who all refused to be quoted on the issue - say there

could be another explanation.



Carat was selected to drive Channel 5’s advertising from its launch in

April 1997 until May 1998. It is possible that the two sides have only

recently begun negotiations based on market rates, having previously run

a sweetheart deal based on Channel 5’s client status. Could fall-out

from the end of the relationship be souring negotiations?



If this is the case, as it appears it may be, who will blink first?



The channel probably takes around pounds 1 million a month from Carat

and, while airtime will be filled, it may have to offer bigger

discounts. It also plans to swap airtime for equity in dotcoms (Media

Business, last week), which might also soak up some supply.



For the agency, the problem is finding another source of cheap

impacts.



Assuming the same level of spend on Channel 5 as last year, Carat might

have to pay around pounds 300,000 more a month to use ITV. But with

luck, the agency might pick up the impacts with a combination of Channel

4 and satellite for the same price. This would enable it to live without

fear of the media auditor.



Alternatively, they might decide to go back to a more peaceful form of

business as usual.



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