MEDIA FORUM: ITV has weathered the storm but can it still float? Alasdair Reid reports on the latest twists and turns in the fortunes of ITV. Are the network's bosses being a little too optimistic, too soon?

Hardened veterans within the ITV hierarchy were pretty pleased with

themselves last week - and they showed it by coming out with all sorts

of nautically inspired metaphors. Strange, this, for such a

down-to-earth, not to say grounded operation. But the message seemed to

be that the ITV flotilla, comprised of the carrier Granada and the

battleship Carlton, had just sailed between a rock and a hard place,

bombarded not only by onshore gunners but threatened also by foreign

armadas. Now it was time to head for calmer waters.



Something like that. The reasoning was threefold. First, a set of pretty

decent results from Carlton in which the company hinted that the grim

airtime market might be looking a lot less grim next year. They also

worked some sort of Paul Daniels routine on the balance sheet, whereby

what was previously £500 million of red ink appeared in the new

set of accounts as a far more reassuring £7 million.



Much of Carlton's (and Granada's for that matter) long- term debt

management problems are down to a continuing commitment to the

loss-making ITV Digital platform - but here too the message was that the

digital damage was not necessarily irreparable or below the

waterline.



The picture is less clear on this point - reports suggest that Granada

wants to offload the whole business to BSkyB while Carlton favours a

digital coalition involving the BBC and Channel 5 - but the bottom line

is that there's more optimism on this score than there has been in

months.



And as the Carlton and Granada share prices edged up, ITV sources were

not exactly depressed to read news coming through of yet another profits

warning from Europe's biggest broadcaster, RTL. For many weeks now, City

sources have been arguing that it might do British broadcasting a power

of good if RTL, which already controls Channel 5, took control at either

Carlton or Granada. Or, in the fullness of time, both.



That now seems a distant prospect. All of which has led some ITV bosses

to re-examine the media ownership paper produced two weeks ago by the

Government. They're now interpreting it as a clear signal that a future

merger between Carlton and Granada would be blocked.



In other words, add it all together, perform some creative arithmetical

tricks and you have a clear conclusion - the ITV duopoly is likely to

survive for the foreseeable future. Would that be a welcome prospect for

advertisers?



Some City commentators don't exactly see it that way. Lorna Tilbian, a

media analyst at Numis, certainly doesn't think much has changed. She

comments: "A Communications Act is coming, we know that, and I believe

we will get it by 2003. It will absolutely clear the way for a single

ITV. That's the timetable we're still marching to. The ITV companies

have been pointing to the fact that recently the rate of decline has

been slowing, but once Christmas is over that (entertainment sector)

money will go and they will be back to their traditional advertisers

such as Procter & Gamble. I don't think anything has really changed as

regards the debt situation either. They've taken it off the balance

sheet but it's still a liability. It still has to be repaid."



But she does agree that it's unlikely we'll see RTL pursuing either

Granada or Carlton in the foreseeable future. "RTL already has 65 per

cent of a Channel 5 entree. And are they going to pay cash (for an ITV

stake)?



I'm sceptical about the whole European thing, frankly. It's like during

the last recession when everyone was expecting a wall of Japanese money

to arrive. It didn't happen."



Which would be good news for advertisers, wouldn't it? Not necessarily,

John Blakemore, the UK advertising director of Glaxo SmithKline,

reveals.



He comments: "Our attitude is that we have nothing against the

consolidation of ITV if that means it is more able to compete against

the BBC. Our area of concern is airtime sales - and if Carlton and

Granada were to merge we would need safeguards with regard to the

airtime market. That would be an issue for the Competition Commission

but quite how it would be able to satisfy us on that score we don't

exactly know. But foreign ownership doesn't worry us. I think everybody

working in the broadcast arena wants to see the highest possible

audiences for commercial television and anything that enables that would

be welcomed."



Chris Locke, the managing director of MediaVest, echoes Blakemore's

concerns about airtime sales: "The point about ownership is that there

has to be two companies selling ITV in London because ITV takes 60 per

cent of the money and no-one is fooled by anything it says about not

being arrogant and not abusing its position. It says it quite openly -

it has to be nice to advertisers once every five years. And the thing

about this recession is it probably won't be like the last one, which

was long but not very deep. This is a short, sharp hit. So soon we'll be

back with deflation in audiences combined with money coming back. In

other words, huge inflation."



And Locke argues that the PR noises ITV makes are unconvincing, even to

itself. "If you look at the figures for any agency you care to mention,

the amount of their investment in ITV is falling.



ITV is still basically about managing decline - and broadly, its

performance remains poor. It's like one of KFC's rivals. They call

themselves Perfect Fried Chicken. Does anyone believe their fried

chicken is perfect? But they'd hardly call themselves Rather Inferior

Fried Chicken, now would they?" he states.



And Simon Mathews, the chief executive of Zenith Optimedia, is also

sceptical about the way the balance sheets of both Carlton and Granada

are being interpreted - he continues to believe that a merger is

inevitable. But doesn't this remain a political nightmare?



Not necessarily, he argues. "Actually the only thing the Government

really wants is a digital Britain by 2010 so that's why the media

ownership consultation paper has been doing the rounds. This paper

interestingly enough allows Murdoch to acquire analogue TV if he dilutes

his share in the newspaper market - which could give Channel 5 the

perfect leap into the digital world. Lord Hollick is rumoured to be

quite keen on selling his share in Channel 5, why not to Sky? Meanwhile,

ITV can slip into a Granada-Carlton merger, giving Sky about 35 per cent

of total digital broadcast in 2010, the coalition (the much-vaunted

pooling of the digital arms of the BBC and ITV) circa 45 per cent and

the rest nowhere much. How did Sky pull that off in only 25 years?" he

ponders.



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