Just how much is ITV milking the X Factor cash cow for?

Thirty-second spots in this weekend's final of 'The X Factor' will trade for an eye-watering £235k, say media buyers. But as Ofcom investigates the show for product promotion, Chris Tryhorn argues the ads are just the tip of the iceberg for the most commercial singing contest ever invented

One Direction: ' X Factor' finalists
One Direction: ' X Factor' finalists

Whether Cher, Matt, Rebecca or One Direction are judged to have 'The X Factor' on Sunday night, the hit talent show has already produced some big winners.

ITV, FremantleMedia, Sony and Simon Cowell all have reason to congratulate themselves on milking 'The X Factor' cash cow like never before.

Nothing demonstrates the show’s status as the leading behemoth of commercial television more than the price advertisers are willing to pay to appear in this weekend’s (11 and 12 December) live finals.

Thirty-second spots in the two-hour shows are trading at around the £235,000 mark and could be worth as much as £300,000 for the ad break before the result is announced, according to media buyers.

That would make the two shows worth about £21m to ITV, excluding revenue from phone voting and the knock-on benefits to other shows. Ads for Pizza Hut, the new Disney movie 'Tron' and Kellogg’s Crunchy Nut Cornflakes are among those expected to appear.

The reason for the extraordinary price tag is simple – in an age of audience fragmentation and time-shifted viewing, 'The X Factor' provides an unrivalled chance for advertisers to reach a huge audience. "It’s just a moment in time, there’s nothing else like 'The X Factor' in the UK," says Chris Locke, group trading director for StarcomMediaVest. "This is like the Super Bowl."

Judging by ratings so far this year, which have been helped by a peace deal with the BBC to avoid clashes with 'Strictly Come Dancing', the audience for Sunday night’s show could easily hit a new record and even break the 20 million barrier.

The show's popularity is fuelled by an endless stream of newspaper and magazine stories reporting on controversies on- and off-screen, as well as every scrap of gossip about the contestants' lives. Never has the maxim about all publicity being good publicity seemed more apt.

For ITV, it is the much-needed boost to its traditional business of airtime advertising - revenue it does not have to share with the producers – that makes the show so valuable to the broadcaster.

Non-traditional revenue streams

But 'The X Factor' also provides a model of how ITV is trying to extract more revenues from non-traditional means. For example, there’s copious video advertising on 'The X Factor' page on ITV.com. Revenue here is shared with the show’s producers, FremantleMedia and Syco, a joint venture between Sony and Simon Cowell.

ITV’s sponsorship deal with phone and broadband company TalkTalk is thought to be worth £20m over three years. And last year it introduced "vertical" sponsors, who pay an estimated £250,000 for prime slots on ITV.com covering four spinoff areas – fashion, beauty, music and cooking.

So you can watch 'The X Factor' finalists' style tips in association with the online retailer Very or see them cooking with the help of Sainsbury’s chefs.

Some of the show’s newest money-making tactics have caused controversy, however. For the first time this year, contestants’ performances have been made available as paid-for downloads on iTunes – and the show also gave a boost to the Beatles’ iTunes debut with a themed night last month.

But this week Ofcom announced it was to investigate the show for directing viewers to downloads featuring guest performers – an apparent breach of guidelines that Fremantle attributed to a "script error".

Such is the show’s unashamed profit motive that some have also suspected commercial imperatives operating below the radar. For instance, ITV recently ran Olly Murs Revealed, a documentary co-produced by Sony about last year’s 'X Factor' runner-up, who now has a record deal with Sony.

ITV said the programme was commissioned on its own merits in the expectation that it would perform as well as or outperform other shows in its slot.

But some promotional tactics are built into the format. The Sunday night programme, which was first introduced last year, has now become a major showcase for established music acts, both protégés from the Cowell stable and stars from other labels. Those performing this year to promote new albums have included Jamiroquai, Take That and Justin Bieber.

Cowell’s company also benefits from signing up the winning act and having first option on any other talent that has emerged from the show.

For FremantleMedia, the TV show is likewise just the starting point: as well as providing the online content for ITV and taking a share of those revenues, they control the merchandising and licensing rights.

They run the live tour and this year launched X Magazine [published by Haymarket, the owner of Media Week] and an 'X Factor' games console. The format has become a global success, and is now sold to 17 countries.

Global rights deals

ITV, Fremantle and Syco renewed their lucrative partnership in October when they signed a new three-year deal covering both 'The X Factor' and fellow talent show 'Britain’s Got Talent', plus rights to show their US versions.

The cost of the deal and details of the revenue share between the parties was kept strictly confidential, but ITV is thought to be paying more than £100m over the three-year period, with about two thirds of that representing the cost of 'The X Factor'.

Of course, it is frustrating for ITV to pay for a format rather than develop its own money-spinners in house. But what Cowell has created in 'The X Factor' and 'Britain’s Got Talent' is now indispensable.

Its robustness is attributed in part to Cowell’s relentlessness in keeping it fresh editorially by tweaking the format each year – bringing in audience auditions last year and the wildcard rule this year.

But it faces a huge test with next autumn’s launch in the US. Potentially, this is the deal that will take the show to a new level financially, promising ratings bonuses for the producers and the additional benefit of worldwide syndication.

Cowell has yet to say how he will split his time – although it should be possible for him to commute between judging the US version midweek and the British one at the weekends. Nor can the show’s success on Fox be guaranteed, given the established success of 'American Idol'.

For now, though, it’s hard to see much derailing the Cowell juggernaut. "Nothing goes on forever, but Cowell is pretty unusual," said one person close to the production. "He is extraordinarily ambitious and demanding for the format; he insists it isn’t done the same way every year.

"The production values are quite extraordinary, he drives it and drives it and it’s his ambition to continue to make it better and better."