Ever since July, when Campaign revealed that ITV was facing a major hole in its ad revenue because of falling audience figures, there has been speculation as to what the final effect of Contract Rights Renewal will be on the commercial broadcasters.
Because CRR is dependent on ITV's final share of commercial impacts, it is only now that any reasonably accurate projection can be made on the likely shape of TV deals in 2005. Campaign asked the broadcast directors of the major agencies anonymously to reveal their plans for next year, and give an overview of their thoughts on how various TV stations - and sales directors - are performing.
Some common themes emerged. All of the broadcast directors welcome the fact that finally, after months of wrangling, the TV advertising bureau is now becoming a reality. As one TV buying chief puts it: "People underestimate the residual resentment that has accrued over the years; most of it has been directed against ITV, but it has affected TV as a whole."
The problem of deal servicing and the (in)frequency of visits that sales chiefs make to the agencies continues to irritate, although no single station or sales director was fingered as the worst. But one thing was clear - because CRR allows agencies to adopt a fallback position with ITV and forbids the network from pulling agencies' airtime in January if a deal has not been agreed, this negotiation season will last longer than those in the past.
So what's up for grabs? Well, Campaign's early prediction that CRR could cause ITV to lose £100 million of ad revenue now looks unlikely - the Olympics on the BBC contrived to make for a miserable summer for ITV, but to the relief of its sales team, things have got better since. The broadcaster has also just unveiled ITV3, which has got off to a creditable start and will help to protect its position.
Nonetheless, broadcast directors predict that ITV's share of net advertising revenue will drop by between two and four points, with between two and two-and-a-half points looking the most likely outcome. This amounts to a potential £60 million to £75 million of ITV money coming into the market, and the majority of broadcasters are aggressively seeking a slice.
In its defence, ITV has been honest about its problems in its agency upfront presentation - the summer schedule did not work well but, it insists, the launch of ITV3, a total programming budget of more than £1 billion and the rapid growth of Freeview, where it performs best, all make for a stronger 2005. But a revenue hit in the order of £70 million is still a bitter pill for shareholders to swallow, no matter what savings can be made from licence renegotiation, and it's not a situation that they'll want to see repeated.
At first glance, the most likely beneficiary of ad revenue coming out of ITV will be Channel 4, which has experienced year-on-year improvements in audience levels. But frustratingly for its sales director, Andy Barnes, its audience has begun to falter in recent weeks just as the negotiation round begins. Because of this, Barnes and his head of agency sales, Matt Shreeve (who, incidentally, receives praise for being the most effective negotiator in TV), will want to get their airtime deals finalised sooner rather than later in case the slide continues.
The consensus on the only other terrestrial broadcaster, five, is that it long ago reached its plateau and, if anything, could experience a small loss in ad revenue. With five's audience share having peaked last year and with no sign of a multichannel strategy to protect its position, the best that five can expect is that its share of ad revenue remains static on 2003 - none of the broadcast directors plan to invest more money into the station and some predict a small decrease.
According to the agencies, service levels at five are becoming an issue and, since the departure of its deputy chief executive, Nick Milligan, to Sky Media, some think its sales line-up looks lightweight. If five is to maintain its position in 2005, Mark White, the executive director of sales, and Kelly Williams, the sales director, need to prove their mettle.
Milligan's new charge, Sky Media, has seen some dramatic changes since he joined, with the departure of the sales director, Mark Chippendale, and the imposition of a new culture on what has in the past been thought of as an under-performing outfit. With its airtime debt now negligible and improvements to Sky One's schedule matched by increases in audience, things look brighter, although concerns about internal systems remain.
Before committing more money, the broadcast directors want assurance that Sky One will continue to perform well and will also need convincing that its airtime prices are worth paying as penetration of its premium channels continues to slow. Milligan's high profile among sales chiefs can only do the broadcaster good.
Along with Channel 4, the Flextech-owned sales house ids could also enjoy an increase in revenue, although it might not be as dramatic as its managing director, Mark Howe, thinks.
Although ids has enjoyed a dramatic rise in share of commercial impacts across its channels, the perceived environment and the clutter leave some people a little cold. "Ids just has a load of crap stations and it's frightening that people watch them," one broadcast director comments, while admitting he will be increasing his share of TV budget to the sales house.
At the other multichannel sales house, Viacom Brand Solutions, this year has also seen changes on the management floor after the departure of its managing director, Paul Curtis, to join Milligan at Sky Media. As a small player, Viacom could enjoy some increases in ad revenue after all of the major deals are done - its channels are effective at reducing cost and provide small levels of incremental cover.
Elsewhere, with ITV becoming the majority shareholder in GMTV, the spectre of its standalone sales division being rolled into ITV Sales has emerged.
This would be a shame, those broadcast directors whose clients target the breakfast audience say.
Although the sales director, Clive Crouch, and his team are rarely seen around agencies, the consensus is that it has carved a successful niche for itself and puts client service to the fore.
"The funny thing about this is that ITV doesn't want GMTV sales because if it gets it, then agencies will conditionally buy against it and it will become a noose around their necks. So, it would be good for me if it did get rolled in but I suppose it makes sense for ITV to keep it separate," one broadcast director concludes.
A final mention should go to S4C, the public service Welsh-language broadcaster, which divorced its sales operation from ITV Sales late in the year. Now run by a team of former ITV sales staff and led by Mike Lench, agencies believe it will struggle to make an impact. With its already tiny audience seemingly in terminal decline, S4C hasn't got much of a sell and will need all its team's contacts and goodwill to keep its revenues steady.
WHAT THE MAJOR SALES HOUSES BELIEVE 2005 HAS IN STORE
GARY DIGBY - sales director, ITV Sales
"Our whole debate is focused on the fact that we spend more than £1 billion on programming across ITV. Do you really want to have more airtime on channels that are clogged with DRTV advertisers? They may look good on a spreadsheet but are they the right environment for a brand? We passionately believe that we have a value over and above a mathematical equation.
"The ITV1 product this year hasn't been as good as it has been in the past, but we're very confident that next year things will be better. We're now able to respond much more quickly to a programme that doesn't work, which is a benefit to advertisers. For 2004, we've invested heavily in quality drama and other proven commercial successes.
"Using extensive on-screen promotions, we're trying to keep viewers within the ITV channels. Some of the multichannels just provide additional impacts, whereas ITV2 and ITV3 provide real value with a quality programme product.
"I think Channel 4 will struggle next year. Some of its product, such as Wife Swap, is beginning to look very tired."
MARK HOWE - managing director, ids
"We've had a phenomenal year this year and we hope to grow by an additional whole share point for next. Audiences are up by 20 per cent and we've had a lot of success with Living TV and the launch of UKTV G2. We've doubled the size of our commercial development team and we're getting new advertisers on TV as well as increasing our share from existing ones.
"Our growth levels are sustainable and, because of the price differentials between us and Sky and our ability to hit unique cover in attractive audiences, we've got ambitious growth plans for 2006.
"I'm flattered by the fact that ITV Sales is putting ids in its agency presentations - it shows that it thinks of us as a threat.
"DRTV is not such a significant element of our business - we've dropped it by 30 per cent this year and it's largely completely absent in peak."
KELLY WILLIAMS - sales director, five
"At five, contrary to industry speculation, the mood is distinctly upbeat.
You can only enter a negotiation season supported by two things - performance and prospects - and we score strongly for both. Agencies implored us to address our 16- to 34-year-old audience performance, so we've just delivered five consecutive months of growth,with October our best.
"Programming prospects for 2005 look bright. As Channel 4's reliance on Big Brother grows to ever-more extreme proportions, five has become progressively less reliant on movies, with those that remain increasing in quality.
"You won't catch anyone here knocking Nick Milligan, but to suggest his departure will affect our ability to trade is ridiculous. Nick hasn't negotiated an agency deal this millennium. It's business as usual.
"Ever since our Thames days, we've always tried to be honest and reliable. We don't overtrade and we don't carry debt. With three ITV share points up for grabs, why wouldn't agencies want to use a channel that's grown share across each of our seven years?"
NICK MILLIGAN - managing director, Sky Media
"The deal season has started well, with every broadcaster making the case for TV as a medium as well as for the effectiveness of their respective channels. Only one large terrestrial sales house has reverted to knocking copy, but I suppose this is just old dogs and new tricks.
"After a disappointing start to the year, Sky Media's audiences have recovered strongly. Our increased investment in content, the rebrand of Sky One and a more effective promotional strategy have delivered double-digit growth to our autumn schedules. Our full year's impact growth should deliver a 5 per cent increase.
"Skyview will become a reality next summer and add valuable learning for all of us. Our internal priority has been to clean up the book, which we have achieved. Next we will review all servicing standards and review our airtime booking system.
"CRR is what it is and agencies will ensure that they retain as much deal flexibility as they can. Channel 4 and Sky Media will be the main beneficiaries."
NICK BAMPTON - managing director, Viacom Brand Solutions
"Our remit is to outgrow multichannel and this is deliverable. There are a number of places that CRR money could go: Channel 4 might look an obvious place but it has only managed to get its audience levels back to those of four years ago, while Sky and five are in for a tough trading period. This means that agencies are in a strong position and will want to buy flexibility for later in the year.
"With agency consolidation and auditors, the differential in relative price has become minimal. To get better value, agencies will look to reduce their absolute price by using the smaller channels.
"Direct response television has become less a part of our business and, anyway, all broadcasters carry these ads to some extent. While I agree that some DRTV ads do not provide a decent environment for other advertisers, it's up to the advertisers to improve this. We provide the quality programme environment.
"I worked completely alongside Paul Curtis (ex-head of Viacom, now at Sky) and as far as dealing and trading goes we shared the role. Here all of our team are involved in the process of trading for the whole of the year."
ANDY BARNES - sales director, Channel 4
"We're obviously looking to grow, because of the unique position that Channel 4 is in. In an increasingly homogenised world, we've got a differentiated product - young and light viewers that are difficult to reach - and Channel 4 is increasingly going to be the vehicle that makes this happen.
"While just a year ago we wouldn't have heard of shows like How Clean Is Your House? and Wife Swap, they have become part of the vernacular and are now copied by other broadcasters. Imitation is the most sincere form of flattery. The challenge for Channel 4 is to come up continually with such new series.
"Can anyone guarantee that they are going to wake up and find that they are not part of a merger? No. But any coming together has to be for a raft of reasons - scheduling and purchasing, for example - and sales would be the last reason because we wouldn't want to be in a CRR position. The chances of Channel 4 merging its sales operation with another broadcaster in 2005 are nil."