MEDIA FORUM: Should share deals hold the key to an ITV merger?

Will doing away with share dealing make the Carlton and Granada merger palatable to the Competition Commission, Alasdair Reid asks.

Another bright idea from those people at the Competition Commission.

The Commission is clearly tending to the view that a full merger of Carlton and Granada, lock, stock and sales house, would probably be bad for business and against the public interest. So now it is probing for ways in which this bad idea can be turned into a good one. Back at the end of April they were talking about codes of conduct and undertakings designed to protect the common good. Someone, somewhere is clearly desperate to test that old Sam Goldwyn maxim about a verbal contract not being worth the paper it's written on.

But the latest proposal is a bit more concrete. Last week, the Commission invited views on "whether any adverse effect, which the merger might create, could be addressed by prohibiting contracts that committed a share of an advertiser's or a media buyer's annual expenditure for TV advertising".

Outlawing share deals? Are they serious? This clearly took many in the marketplace by surprise - and there was something of a knee-jerk reaction against the very idea. After all, share deals have been central to TV trading mechanisms for a decade or more.

It is understood that this latest proposal came as a result of soundings taken by the Commission in the City, where there's a culture of "think the unthinkable" (inasmuch as it doesn't touch on the subject of remuneration packages, golden hellos or platinum parachutes, obviously). City wisdom is that the UK airtime market is actually ripe for change and that the only reason why the marketplace would be bound to oppose such a reform is that it - and the finger is pointed specifically at media buyers and TV sales houses - is generally lazy and stuck in its ways. Buyers and sellers, so the argument runs, fear the upheaval, grief and short-term expense of moving to a new system.

Jim Marshall, the chief executive of MediaVest and chairman of the IPA's Media Future's Group, argues that this isn't a serious suggestion from the Commission. They are just showing that they are prepared to turn over every stone in the search for a way forward. He says: "The IPA view is that share deals is a red herring. The real issue is the fear that one organisation will have a disproportionate level of power in the market.

Of course you could argue that if ITV is owned by one company, the system of share deals could be open to huge levels of abuse by that company.

But the point is that any trading system will be open to abuse by a single ITV. Share deals, though, aren't inherently uncompetitive. So our view is that pursuing this would be a huge error and there are arguments that other possible trading systems would actually be more dangerous."

Almost everyone brings this up. Take, for instance, the obvious alternative - volume deals. You did pounds X million with us last year, ITV says. This year, if you want your discount, you have to do pounds X million plus 10 per cent. The discount will be attractive enough for advertisers to shovel an increasing amount of money - in real and absolute terms - ITV's way. And because ITV is generally first in line, the money will come out of the pockets of those at the back of the queue - the smaller digital channels.

"Would they then suggest that all forms of trading are bad, in which case the buying and selling of airtime would be on a spot-by-spot basis - which would marginalise the smaller channels to the extent that many would become uneconomic," Marshall adds.

Andy Barnes, the sales director of Channel 4, agrees that the Commission appears to be asking all the wrong questions. "If the ITV merger happens, one way or another they will be in a position to use their power. It's as simple as that. It is absolutely inconceivable that there will be no manipulation of the system. I know the Commission is empowered to ask questions from every conceivable angle but the fact is that the market mechanic is not the issue. The basic problem is ownership and power. We will put our point across as forcefully as we possible can," he promises.

The joke, of course, is that ITV would continue to do unofficial de facto share deals after a merger - and by and large even the bigger buying points would have to toe the line because ITV will represent 50 per cent plus of the market. It would all be done on a nod and a wink but it would still dominate the marketplace.

Or would it? Mark Jarvis, the broadcast director of Carat, has an interesting take on this - not surprising perhaps, given that he and Carat have consistently argued that strong media buying companies have little to fear from an unfettered ITV merger. He states: "Theoretically, it is possible to trade without share deals and to make it work. From everyone's point of view - agencies, clients, broadcasters - there needs to be some sort of metric to evaluate and choose between different investment strategies. If it's not share, the route to go down would then be volume, though that does pose particular problems."

The biggest problems are obviously for the sorts of advertisers who, for various reasons, can't be consistent year after year in their spend.

Car manufacturers spend lots when they're launching a new model, for instance, which doesn't happen every 12 months.

But in any case, Jarvis believes the market has already moved to a stage in its development where share deals are becoming irrelevant. "We're already in a situation where the more audience you deliver the more money you take. ITV is increasingly a preferred option rather than a must have, so that if you are a manager of a large portfolio of business you will have some advertisers for whom it may be essential but others who hardly use it at all," he reveals.

For some individual advertisers, however, ITV is central to the schedule.

How would they feel about loosing share deals? Andy Bolden, the ad director of GlaxoSmithKline, comments: "If ITV is always going to be on a schedule, then it's not as if you're going to punish them for the way they trade.

They will always find ways on to the schedule and that's our desire too because they have a quality volume product. Yes, we can work without share deals. After all, the airtime market worked without share deals way back in the distant past and it can work without them again."

But Bolden agrees that, whether formalised or not, share will always be a factor in negotiations. "There will always be ways to trade that will not be illegal - and there are plenty of figures to work from that are in the public domain. The issue then is transparency and how what you have agreed is recorded. On the whole I'd have to say that this share deal proposal doesn't worry me unduly," he concludes.

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