CLOSE-UP: LIVE ISSUE - TV EYE. Agencies and broadcasters are at loggerheads. Jeremy Lee looks at the arguments

What is TV Eye?

TV Eye is the successor to ITV Networks Limited, more commonly known as the accreditation committee. Its members are the commercial television companies Granada, Carlton, Channel 4, Five and GMTV. Flextech's sales house, IDS, has recently joined but BSkyB has opted not to for the time being.

Despite its change in name, the role of TV Eye remains the same - providing accreditation (terms of credit) to agencies so they can trade with broadcasters.

What's TV Eye up to, then?

The existing accreditation system looks archaic (each agency has its own deal with TV Eye). These old arrangements are coming to an end and new, more stringent rules are being introduced.

TV Eye, which is chaired by the sales director of Channel 4, Andy Barnes, is trying to force those agencies without an equal debt-to-equity ratio to increase their levels of insurance via bank guarantees.Without accreditation, agencies could still buy airtime, but probably only on a money up-front basis.

What is TV Eye's rationale, then?

The theory is that if an agency goes to the wall, it could collapse with outstanding airtime debts and its assets cannot guarantee these will be paid. With a bank guarantee, this revenue would be protected and therefore the TV companies would be able to reclaim any outstanding debts.

Sounds fair enough, doesn't it?

It depends who you talk to. The official line is TV Eye is trying to protect its members in the light of the various accountancy scandals that have hit the corporate US.

Although all the broadcasters are supporting the move, some believe that the ITV companies Carlton and Granada instigated it in order to make themselves more attractive to a US buyer.

Why are the agencies annoyed?

Since no agency owned by the big multinational holding companies has a 1:1 debt-to-equity ratio, and probably couldn't prove it even if it did, most of the major media agencies are facing a significant hike in the cost of TV trading.

Acquiring a bank guarantee or an insurance policy is expensive - in the order of £250,000 each, a significant sum for any agency working on tight margins.

For agencies without the bank guarantee, clients would have to pay up-front for their airtime. Except that clients probably would not, so the agency would be forced to borrow from the banks until the client paid up. At which point the economics of running a media agency begin to look impossible.

So what is the likely outcome?

TV Eye denies agency claims that it has created a cartel, saying it merely makes recommendations on which agencies the TV companies trade with. However, some agencies insist the new rules constitute a conditional sell and are now threatening to go to the Office of Fair Trading with the issue.

TV Eye has a deadline of 31 March for the introduction of the new system. But agencies, through the IPA, have already consulted lawyers and are standing firm.

However, the most likely resolution will be a compromise away from official examination - after all, some broadcasters believe that referral to the OFT is unlikely because it would expose agencies' own trading practices to scrutiny.