At this month's ISBA conference, ITV's executive chairman, Michael Grade, told the audience that Contract Rights Renewal trading means that ITV always has to commission "banker" shows, such as Heartbeat, rather than take a risk on a new, exciting, but unproven drama, for example.
He said: "The point is not the immediate creative and commercial risk, per se; that's fair enough. With or without CRR, it's all about the ratings. But under CRR, the financial consequences of a programming risk that doesn't come off are simply punitive. So why take any risks? Let alone those that are well beyond normal commercial risks.
"CRR is a straitjacket from which you need us to escape. You want us to renew the schedule, to improve our performance, to refresh our programmes. A mechanism that punishes us beyond a normal commercial downside for every risk that doesn't quite come off cannot be the way to do that."
Here Jim Marshall, the chairman of Starcom and IPA's Media Futures Group, responds:
ITV wants CRR reviewed and clearly amended. Grade's argument is that ITV has to rely on "tried and tested" programmes because of the potentially severe implications on its revenue in the event that new programme formats either fail to perform or are slow to develop.
Inevitably, Grade's argument is both eloquent and persuasive. It also elevates the debate from ITV's previous general "whinging" about CRR. Even so, in my view, it still misses the point of CRR.
Putting CRR in context
CRR was invented (ironically by ITV) and launched with the sole purpose of ensuring that ITV did not behave in a monopolistic manner as a result of the merger of Granada and Carlton and the creation of a single ITV and a single ITV sales force. At the time, ITV represented just more than 50 per cent of total commercial airtime sales.
Since the merger in 2003, ITV1's audience and revenue have slipped at a rather more rapid rate than ITV, and in fairness, most of the industry commentators, expected. Furthermore, overall television advertising revenue failed to grow last year and is set to decline again this year. So ITV's financial prospects aren't great. However, ITV1's revenue share this year will be around 40 per cent. This is a highly dominant position: about twice the level of Channel 4, its nearest rival.
Additionally, ITV has successfully launched a number of digital channels. These, when combined with ITV1, will lift its overall revenue share to around 45 per cent. So, in reality, though much has changed in terms of the dynamics and structure of commercial TV since the ITV merger, what hasn't changed is ITV's dominant sales position.
If CRR was removed or relaxed, ITV would again be in a potentially monopolistic position. This is not to say it would abuse this position, but it just might, and history and commercial reality suggest it would.
ITV will argue: "We don't want CRR removed, just reviewed. And we would expect regulation still to be imposed on our airtime sales." Fair enough, but why then hasn't it come up with some alternatives?
The answer may be that finding an effective and acceptable alternative to CRR is a problem. Or possibly, ITV does not want an alternative, it just wants it to go away.
The fact is the advertiser and agency community feel CRR has done its job effectively. The mechanism contains iniquities and can be a bit "one dimensional", but even at its worst, it's like old age - it beats the alternative. So, unless ITV can come up with some alternatives or revisions, that can generate constructive debate, there is unlikely to be any appetite for a review.
Detrimental to creativity?
But what of ITV's argument that CRR is damaging the development of more adventurous programming on ITV1? Exactly the same pressure applies to all other commercial TV companies. It is a hard reality of modern broadcasting that money will follow audiences.
Just ask Sky, which is having to contend with the loss of audience in ntl homes, which could cost it up to £25 million in lost revenue. Or ask Channel 4, which faces possible restrictions to Big Brother. This would have a significant impact on its revenue, purely because of lost ratings. Why should ITV be exempt from these commercial pressures? And anyway, why can't ITV trial and develop new programme concepts on its digital channels?
I would argue "no" to any fundamental relaxation of CRR, and only "yes" to a review if and when ITV comes up with some suggestions for acceptable revisions.
WHAT IT MEANS FOR ...
- CRR was the price ITV had to pay for the merger of Granada and Carlton, and despite the broadcaster's concerns, advertisers have generally been happy. While ITV maintains its dominant share of the market, the removal of CRR could see the broadcaster's prices soaring. The general belief is that ITV's share would have to drop a lot more to warrant the removal of CRR.
- ITV blames CRR for holding back its programming, and Grade named it as the reason for the lack of innovation on ITV1. Changes to CRR could allow for better programming initiatives and allow the broadcaster to invest more in its content. However, a concern is that there is no guarantee ITV would invest all the money it earns from scrapping CRR in programming, or that this content would be the high-profile programming advertisers desire.
- The TV advertising market is already hurting, and the relaxation of CRR would not necessarily help the overall industry. It instead could see ITV in a monopolistic position over its competitors. CRR has become the basis for TV trading by most broadcasters. Sky is already running the risk of introducing its own CRR model in the wake of the breakdown of its carriage deal with Virgin Media, and growing programming restrictions mean broadcasters will be keen to see CRR stick around.