MEDIA FORUM: Will ITV sales still be credible following a merger?

Can ITV come up with a credible post-merger sales structure? And how will rivals react if it does? Alasdair Reid reviews industry opinion.

The proposed Carlton and Granada merger, according to some of the more world-weary observers, promises to be a classic botch job. They believe there lies a classic contradiction in terms behind the proposition. The critics point to the companies' apparent belief that the merger can create one ITV, while maintaining the vigorous competition between their airtime sales operations, or derivatives thereof, ensuring that the network doesn't abuse its position in the market (54 per cent of UK television revenue).

Last week, ITV made its first stab at outlining a possible post-merger sales structure. The Granada sales operation would remain as it is but the Carlton sales outfit would be bought by its chief executive, Martin Bowley. He would then run it as a totally separate and independent company.

However, within hours, a different model was being touted. The original one wouldn't work because son-of-Carlton-Sales would be seen, correctly, as the weaker sales point, the one that would be allowed to wither on the vine as ITV's total share of revenue continued to decline. So no advertiser in their right mind would tie up a deal with Carlton first. It would be forced to fight for scraps on disadvantageous terms.

Except, of course, cynics argued, it wouldn't. Instead, they claimed, ITV would be forced to work all sorts of jiggery-pokery behind the scenes to rig the market. It would be a surreal farce from the start. Something just a tiny little bit more credible was needed.

Enter blueprint number two, whereby both the Granada and Carlton sales operations are spun off. But this would also raise issues, such as the fact that, in attempting to create one ITV, you will in fact create three separate operating units, with all the cost implications therein. And you still haven't addressed the fundamental problem of transparency and trading credibility.

Perhaps unsurprisingly, Bowley doesn't agree that there's a problem here at all. He is adamant that a credible, competitive sales structure can be devised. "The interface with the buying community has always been via the sales department, never the parent company. It's the sales department that competes, not the parent," he insists.

Andy Barnes, the sales director of Channel 4, is somewhat sceptical of Bowley's claims. "He would say that, wouldn't he?" he points out. "Will two ITV sales houses really compete? No, they will not. The key is ownership.

In what other business would an owner set its sales force against itself?

It's ridiculous. The question is this - do you believe the price of ITV airtime is going to go down, stay the same or go up? If it goes up, that doesn't mean the amount of money coming into the market will go up - it will just have to come from elsewhere.

And if you have two sales houses, where are the efficiencies and cost savings? And, if having two sales houses is so good for competition, why not have four ITV sales houses? In fact, why not have ten ITV sales houses?"

Barnes is clearly annoyed that the ITV merger has been given the political nod - leaving everyone else to pick up the mess. "We are being asked to find a way around the fact that it does not represent fair competition.

If you take competition seriously, there is no way this can go through," he insists.

And, indeed, there are many observers who now believe that this is, at some level, a fait accompli - a political stitch-up. Assuming they are right and the merger does go through, what are the implications for the rest of the market? Would Channel 4 then merge its sales operations with Channel 5 or Sky? "We'd obviously look at it," Barnes says, while refusing to speculate further.

Some agencies believe a nightmare scenario could now unfold, with the whole of the rest of the market consolidating toward one non-ITV sales house. In the short to medium term, a Channel 4-Channel 5 sales house would be the biggest in the market and the Office of Fair Trading and the Independent Television Commission would look very silly indeed if they attempted to block it on competition grounds while waving the ITV merger through.

Some advertisers recognise that a single ITV is inevitable - and may even be desirable if it helps the network take the fight to the BBC. But many have issued veiled threats about what will happen if ITV abuses its position.

Angus McIntosh, Masterfoods' head of media and the chairman of ISBA's TV action group, has a rather more measured response. He hopes that, if the merger does go ahead, some form of credible sales structure can be devised. He states: "It is up to the companies themselves to demonstrate that it is possible. But I don't think one ITV-owned and one independently owned sales house would be credible - they have to come up with something more convincing. We would also need to be reassured about the governance between ITV and the sales houses, and we would need clear safeguards, for instance on the information that is allowed to flow between the (various parties)."

And what of buyers? Some have stated in the press that they see nothing to fear - even from a single ITV sell. Chris Boothby, the negotiations director of BBJ, wouldn't go that far. He believes the only way to create a strong ITV - one able to deliver significant, quality audiences - is through a merger. He also thinks it may be naive to think that the issue of sales can be divorced from ownership. But he adds: "While it will be incumbent on the Competition Commission to insist on the necessary safeguards to satisfy competitive demands, ITV's position should be put into perspective. For most audiences, ITV's audience share is now at a level that will prevent them from being able to effectively apply monopolistic pricing, and, in the future, continuing competition from the BBC and multichannel sectors will mean ITV will still be managing audience decline. ITV will therefore remain a preferential and desirable choice but not a 'must have' on schedules."

Tim Greatrex, the managing director of Zenith Media and the IPA's Media Policy Group representative on TV trading issues, says that until ITV puts forward more in the way of concrete plans, it is impossible to pass judgment. In the meantime, it's the duty of agencies to keep asking questions.

"The bottom line is that advertisers need to be sure the market will be traded in a way that doesn't allow ITV to abuse its position, especially at a time when advertisers are looking for more flexibility, not less.

Where the timing is concerned, I don't think anything is imminent and in the meantime there has to be as broad a consultation process as possible, which obviously has to involve advertisers. This has to make sense for advertisers because ITV is an advertiser-funded channel," he concludes.

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