ITV says it welcomes Tuesday’s provisional report from the Competition Commission and its recognition of the case for the reform of Contract Rights Renewal, the very complex mechanism which governs how much the broadcaster can charge advertisers. But is ITV really being honest? The answer has to be no.
First some background on the CRR, courtesy of the FT’s media correspondent, Ben Fenton:
CRR was invented in 2003 by Carlton and Granada when the two largest Channel 3 franchise holders were seeking to offer remedies to the Office of Fair Trading in return for permission to merge.
The regime gives advertisers the power to refuse any deal offered by ITV if it worsens their position compared with any contract signed in 2003, in effect freezing advertising costs at the level that year.
An additional “ratchet” system links ITV’s performance in providing a share of the TV audience to advertisers to the amount it can charge for airtime.
Now, ITV’s executive chairman, Michael Grade has been lobbying for the abolition of CRR, or at least substantial relaxation, since he took the job in 2007. But all it seem to no avail.
In spite of the radically changed media landscape, the “remedy” must remain in place says the Competition Commission:
ITV1 has seen a decline in its share of both viewers and advertising revenues since 2003 and there are now more alternatives for advertisers. However, ITV remains crucial for advertisers looking to reach large number of viewers, particularly if this needs to be done rapidly.
The media agencies, through whom the vast majority of TV advertising is bought, need access to ITV1 for their advertiser clients. As a result they cannot withdraw all their business from ITV1. However, we found that if they try to reduce their proportion of expenditure on ITV1 they could be faced with significantly less attractive terms for their remaining ITV1 business. Because of this the changes in the market since 2003 have not increased the bargaining strength of agencies. It is therefore our view that a remedy needs to stay in place.
Of course, Mr Grade is not the only person to have been caught on the hop by today’s news. So has the market, which expected a a complete abolition of CRR.
Unsurprisingly, ITV stock was the biggest faller in the FTSE 250 on Tuesday morning.
However, all is not lost. Although the wording of Tuesday’s statement is much tougher than expected it does look as if the CRR will be tweaked, as Lorna Tilbian of Numis Securities notes:
The CC is considering alterations to CRR, and raises the possibility of including ITV1+1 and ITV1 HD channels within the CRR calculations. The CC is seeking views on two possible variations i) limiting the scope of CRR to ITV’s large audiences and ii) removing elements of CRR while retaining a ‘fair and reasonable’ requirement. We view the latter (which would include the removal of the SOCI ratchet) as the more desirable outcome, but the CC cautions that it is ‘not minded … to pursue this variation’.
But that’s unlikely to be of much consolation to ITV or Mr Grade. In fact, if they were being really honest they would say there is very little to welcome in today’s report.
Related link:
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