Block ITV merger, watchdog urged   by Richard Easson

Advertisers and rival broadcasters will today urge competition authorities to block a planned £2.6bn merger of Carlton and Granada.

Channel 4, Channel 5, BSkyB and the advertising industry will oppose the deal in their submissions to the office of fair trading, branding it anti-competitive.

They want to ensure the OFT refers the hugely controversial deal to create a single ITV to the competition commission, which would carry out a thorough review on the effects of a deal on the UK advertising market.

Channel 4 has branded the planned deal "fundamentally anti-competitive", saying the combined operation would still control 54% of TV advertising - too great a share for fair competition.

Opponents of the deal have already pointed to the competition authorities' rejection of a smaller-scale merger between Carlton and United News & Media on competition grounds. They say this proposed merger should go the same way.

"Granada itself argued against Carlton's proposed merger with United News & Media in 2000 on precisely these grounds and we do not believe the competition authorities are any more likely now than they were then to clear a deal which is so fundamentally anti-competitive," Andy Barnes, the commercial director of Channel 4, said when the deal was announced.

The Incorporated Society of British Advertisers, which represents the UK's biggest advertisers, is "strongly opposed" to the merger of Granada & Carlton's commercial airtime sales activities.

"Such a merger would yield a single player with well over 50% of the UK market for commercial TV airtime - clearly an effective monopoly position, giving them excessive dominance in the market for a key resource for the foreseeable future," Isba said.

Isba is particularly concerned that such a deal would mean consolidation of airtime sales among ITV's rivals - Channel 4, Channel 5 and BSkyB have already held talks about combining their sales operations.

"The logical conclusion of such onward consolidation activity would be an ITV/"rest of the world" (ie, Channels 4 and 5, BSkyB, Flextech/IDS and others) duopoly in commercial airtime sales," Isba has warned.

It says this would be unacceptable both for advertisers and for consumers, who will ultimately have to fund any increase in the cost of advertising.

But proposals to retain two separate ITV sales houses have failed to assuage concerns about the competitiveness of the deal.

The OFT this week contacted broadcasters asking them to provide details of the media marketplace by next Monday.

Once it has concluded its investigation, the OFT will give its recommendations to the Department of Trade and Industry, which will decide whether to refer the deal to the competition commission.

ITV merger referred to competition watchdog

Tuesday March 11, 2003

 By Richard Easson

Carlton/Granada: concern that merged company would dominate market

The merger of ITV giants Carlton and Granada today entered a critical phase when their proposal was referred to the competition commission.

The trade and industry secretary, Patricia Hewitt, who has been examining the office of fair trading's findings since the end of last week, said there were still concerns that the advertising sales operation of the combined company would unfairly dominate the market.

"The director general of fair trading has advised me that the proposed merger of Carlton and Granada raises competition concerns principally relating to the sale of TV advertising. The merger would greatly increase concentration in TV advertising, leaving one firm with more than half of national TV advertising revenue," she said.

"The DGFT therefore considers that the case requires further examination by the competition commission to assess whether this increase in concentration is likely to lead to a substantial lessening of competition," added Ms Hewitt.

Many advertisers and rival broadcasters object to the prospect of a merged ITV commanding over 50% of the terrestrial advertising market.

Carlton and Granada will lobby hard to get their sales houses combined but could also propose a compromise solution whereby one of their sales houses is spun off into a separate company and continues to run autonomously.

The ITV giants announced their intention to join forces in October in a bid to stave off the effects of the advertising recession and the disastrous collapse of the ITV Digital venture.

The office of fair trading has been examining the proposal since then, and at the end of last month handed its findings to the Department of Trade and Industry.

Both ITV companies have seen their share price plummet over the past three years and say they need to pool their resources to compete with global media companies such as BSkyB and AOL Time Warner.

An earlier attempt to merge foundered in February over the shareholding structure of the new company, but the communications bill, which will become law in the autumn, has cleared the way for a deal.

With the bill also set to allow takeovers of British broadcasters by non-EU companies, Carlton and Granada are looking to shore up their defences should a major TV player such as BSkyB buy channel Five.

While some advertisers are expected to continue to lobby against the creation of a single sales house, others have begun to soften their view, arguing that ITV's influence will continue to wane over time.

However, a merged ITV would still have around 54% of the existing advertising sales market, potentially damaging rivals such as Channel 4 and Channel Five, who have said they may be forced to combine their own sales houses if the merger goes through.

The creation of such a dominant force in commercial television will be crucial to the competition commission's investigation, which is likely to take up to seven months.

Under the deal the companies struck, Granada would own 68% of a merged company while Carlton's shareholders would have a 32% stake.

Michael Green, the founder and chairman of Carlton, would chair ITV plc, as it is likely to be called, and Charles Allen, Granada's chairman, would be its chief executive.

Between them the two companies have taken over most of the ITV network, which was originally divided into 15 franchises. Only Scottish TV and Grampian TV - controlled by SMG - and Ulster TV and Channel TV remain outside their ownership.I want this merger to mean great television programmes and the strongest possible schedule.

Wednesday March 12, 2003


The future of the UK television industry was placed in the hands of the competition commission yesterday. It was asked to judge whether Carlton and Granada's plan to merge and create a single ITV company should be allowed to proceed.

The watchdog must decide by June 25 whether creating a group that would claim an estimated 52 per cent of television advertising revenue would distort competition in a rapidly evolving broadcast market.

Carlton and Granada argue that the consolidation of ITV must be allowed to continue if it is to compete against a resurgent BBC and multi-channel operators such as BSkyB.

But advertisers fear such a dominant group could have the power to fix prices.

The referral announcement, although expected, hit shares in both companies. Carlton fell 6 per cent to 70.25p while Granada slipped 4 per cent to 49p.

Trade and industry secretary Patricia Hewitt said she had referred the deal on the advice of the office of fair trading. It called for an assessment on "whether [the] increase in concentration is likely to lead to a substantial lessening of competition". The OFT also raised questions about potential competition for ITV broadcasting licences and the supply of studio facilities in northern England.

Carlton chairman Michael Green said in a statement: "This merger will not affect the competition for viewers. ITV is already one network and advertisers follow viewers and viewers follow programmes."

Regulators investigate mergers if the combined group would control more than 25 per cent of a market but executives claim they could not manipulate prices because of the unique way ITV advertising is sold.

Legislation dictates that ITV must offer seven minutes of commercials an hour. The price is fixed by a complex mechanism called "station average pricing". It was devised with advertisers and determines the cost of each advertisement.

ITV executives insist the system is transparent but some advertisers dispute this.

Executives will also stress that the Independent Television Commission audit every pound of advertising revenue taken by ITV companies, further safeguarding the system.

Over the past five years ITV's share of audiences and advertising revenues has slumped due to competition from new channels, although rivals say problems have been compounded by managerial incompetence.

During that time Carlton and Granada spent £1.2bn on ITV Digital, a disastrous foray into pay TV, while their competitors stole viewers from the network by increasing programme investment.

The June 25 deadline allows the merger to run parallel with the forthcoming communications bill. It is due to become law in November and will allow the formation of a single ITV