LONDON — The Competition Commission warned that ITV’s major shareholders Granada and Carlton could be forced to sell off both airtime sales houses before their proposed merger is approved.
Blighty’s advertisers are worried that the merged commercial network could end up controlling 50% of commercial TV viewing and 54% of national television ad coin, much higher than the 25%-30% ad share limit the regulator tends to enforce.
Advertisers fear that such grip on the ad market would give ITV an unduly powerful position in negotiations.
The regulator is attempting to establish whether the pair compete for advertising revenue and whether the deal would reduce competition or lead to a significant price hike for some advertisers.
But Carlton and Granada claim that the airtime sales formula is transparent because it’s based on a fixed supply of advertising minutes available each hour, and that the amount charged depends on viewer numbers.
Carlton Media Sales controls 46% of ITV’s advertising and sells airtime for its six franchises: Central, Scottish, West Country, HTV, Grampian and Carlton London. Granada Enterprises, meanwhile, manages 54% of ITV’s advertising and sells airtime for LWT, Granada, Yorkshire, Meridian, Channel, Border, Anglia and UTV.
Investors have long believed that regulators would try to maintain advertising competition by forcing the disposal of one of the sales houses, and the suggestion that both may have to go caught them by surprise.
They argue that the combined group should be disconnected from its revenue stream and claim the merger could be doomed if the Competition Commission acts on its threat.
However, advertisers also fear that combining Carlton and Granada’s airtime sales houses may lead to further consolidation at broadcasters Channel 4, Five and ITV breakfast TV franchise GMTV in a bid to compete for a greater slice of the ad pie.
Granada and Carlton are prepared to spin off one sales company, to be run independently of ITV, but it’s unclear whether the pair would accept selling off both.
Not only would they lose the opportunity to make huge cost savings by consolidating the sales houses — they expect to save $54 million in the first year by removing duplication of infrastructure and administration in broadcasting, content and central services — they would also lose a slice of their ad income by allowing other companies to sell airtime on their behalf.
City analysts, however, still believe a merger is the best option even if it means selling both sales houses rather than reverting to the old situation of rival media companies running a commercial network.
“They will have to make a call on whether … that’s a better situation than calling the merger off, retaining the sales houses and beating each other up,” said Kingsley Wilson, a media analyst with Investec.
The Commission has not yet ruled out banning the merger entirely.
It is expected to hand its report to trade and industry secretary Patricia Hewitt on June 25; she’ll have four weeks to make her final decision.