ITV groups head for convergence

Advertisers and agencies are bracing themselves for a hardening of ITV’s ad rates following the Government’s decision last week to allow ITV’s ownership structure to contract from three big companies to two.

Advertisers and agencies are bracing themselves for a hardening of

ITV’s ad rates following the Government’s decision last week to allow

ITV’s ownership structure to contract from three big companies to

two.



The decision by the trade and industry secretary, Stephen Byers, to

allow two ITV companies to merge met with widespread disappointment from

the advertising industry.



The advertiser body ISBA, which had lobbied against any consolidation,

warned that the decision will lead to increases in the cost of

advertising ’and therefore have a profound negative impact on the many

companies operating in the UK consumer economy’.



Ian Twinn, ISBA’s director of public affairs, said: ’Consolidation

within ITV will increase costs and present a barrier to advertising and

the DTI’s decision will therefore impact on the health of the consumer

economy.’



The IPA has echoed this concern. Jim Marshall, the chief executive of

MediaVest and the IPA’s spokesman on the future of television, points

out that while there are three main ITV players, advertisers have more

power to negotiate because they can, feasibly, exclude one player from

their airtime deal. ’Allowing just two ITV companies makes it very

difficult for us to use that threat of exclusion. A duopoly also means

that there’s a real opportunity for collusion between the two remaining

sales houses,’ he said.



Martin Bowley, the chief executive of Carlton Sales, countered such

comments. ’There are plenty of alternatives to ITV in advertising terms

and the fact that the two London licences must be split between

companies will ensure ferocious competition within ITV,’ he said.



Both ISBA and the IPA argue that the Government owes a ’duty of care’ to

UK advertisers as well as to the broadcasters and viewers, and that in

giving a green light to consolidation without more stringent controls on

airtime sales, the Government has failed to fulfil that duty.



Byers has decided that two of the big three ITV companies (Carlton,

United News & Media, and Granada) can merge, dismantling the 1994

voluntary agreements imposing a limit of 25 per cent of TV revenue that

can be controlled by any one ITV company. The rule stipulating that no

company can control more than 15 per cent of the total audience is set

down in the Broadcasting Act, however, and remains in place.



Byers has also ruled that no company can control more than two of the

four ITV regions most attractive to advertisers: Carlton, Central, LWT

and Meridian. This means than the original plan to merge Carlton and

United - which sparked the Government review when it was announced at

the end of last year - will now require the disposal of Meridian.



For this reason, Carlton is now considering whether to push ahead with

the merger and, if so, on what terms. Without Meridian, United brings

only Anglia and HTV to the party, together with its 35 per cent stake in

Channel 5 and its Express Newspapers - not nearly such an attractive

proposition.



Meanwhile, Granada announced months ago that it would mount a bid for

either Carlton or United if the Government decided to allow

consolidation. Following the successful flotation of its media assets

earlier this month, Granada’s chief executive, Charles Allen, is now

sitting pretty atop a pounds 2 billion cash pile, putting him in the

enviable position of being free to pursue either bid, or to make a play

for Meridian if the Carlton/United deal goes ahead.



Yet it is also possible that any Carlton/United combine might decide to

seek an alternative buyer for Meridian in an attempt to weaken Granada’s

position within ITV.



If it looks for a deal with Carlton, Granada will be forced to sell

either the Carlton licence or the LWT licence (no one company can

control both London weekday and weekend licences under the terms of the

Broadcasting Act). However, if Granada doesn’t make a move for Carlton

now it would face a stronger Carlton when the time comes for the battle

for sole ownership of ITV.



Speculation has also centred on whether Carlton/United could seek an

alliance with RTL, which shares ownership of Channel 5 with United (65

per cent and 35 per cent respectively). However, RTL is also rumoured to

be considering making a bid for United itself.



As the financiers run the calculator over all the possible permutations,

advertisers will no doubt be looking at the negotiating muscle of their

media buying companies.



THE ITV PLAYERS


Company              Share of TV       Share of TV

                     viewing (%)   advertising (%)

Granada

LWT                         1.9                7.5

Granada                     3.8                6.4

Yorkshire TV                4.7                6.6

total share                10.4               20.5

Carlton

Carlton                     2.7                9.7

Central                     4.5               10.1

West Country                0.8                1.3

total share                 8.0               21.1

United

HTV                         2.2                3.5

Meridian                    2.4                7.0

Anglia                      1.8                4.3

total ITV share             6.4               14.8

Channel 5 (35% stake)       2.8                2.0

total group share           9.2               16.8

Scottish Media              2.4                3.7

Source: ITC and GS Research estimates