ITV Merger Will Proceed Despite Divestment
The proposed multi-billion merger of the UK’s largest commercial broadcasters, Carlton and Granada, will go ahead even if the Government forces them to sell off their airtime sales houses, according to senior executives at this year’s Media Guardian Edinburgh Television Festival.
Tess Alps, chairman of media buying group, PHD, said: “Advertisers are realistic and we know that the merger is going to happen. But it’s a really truly scary picture – a situation where an already distorted marketplace, will become really destructively distorted.”
The merger, which is currently being scrutinised by the Secretary of State for Trade and Industry, would lead to the creation of a single ITV with more than 50% control of the market for airtime sales.
Advertisers are opposed to this aspect of the deal and are calling for the companies to be forced to divest both their sales houses. Alps said: “If we allow Carlton and Granada to merge and have a single sales house, we would create a King Kong and lots of monkeys.”
She added: “The money that would be squeezed out of the television advertising market would come directly from Channel 4, Channel Five and multichannel operations, which would damage them possibly irreparably and would certainly stop them competing with ITV.”
However, former head of Channel Five, David Elstein, insisted the benefits of the merger do not depend on the savings generated by combining Carlton and Granada’s sales houses. He claimed: “The bogeyman of double divestment has been greatly exaggerated.”
He said: “All the benefits of the merger, which are very, very substantial in operational terms, do not depend upon the £20 million worth of savings that might be achieved by merging the two sales houses and eliminating a certain amount of duplication.”
Elstein said that both sales houses are “hugely” overstaffed with high wage bills and argued that £20 million a year could be saved in operational costs, regardless of whether they are divested. He said: “There are 450 people doing what takes 84 to do at Channel Five.”
Carlton and Granada estimate that the merger would save them between £35 and £55 million a year in costs. However, Elstein claims that up to £100 million can be extracted from a single ITV, aside from what happens to the airtime sales houses.
He argued that substantial savings would come from combining transmission, programme making and news operations, as well as head office and other regional departments. He said: “If you look at these businesses they’ve got operating costs of somewhere around £2.2 billion a year and they’re saying if we merge these two companies we can save 1.5% of our cost base. I think that’s very unambitious. I’ve suggested that maybe 4% might be achievable.”
“My view is that you could probably shift around £100 million a year out of in-house spend to the independent sector and deliver to the network centre greater flexibility, greater strategic impact and greater value,” he added.
Elstein also quashed rumours that he is looking to move into the chief executive role at ITV, should the proposed merger of Carlton and Granada proceed. He denied any interest in a senior role at the newly merged company, despite his proposals recommending replacements for current heads Michael Green and Charles Allen following the merger.
Under Elstein’s proposals, former BSkyB finance director, Richard Brooke, and former Five finance director, Damien Harte, would be brought in to take up lead roles at the ITV business, whilst Elstein would himself remain in a non-executive, advisory position.
It is understood that Brooke would take up the position of finance director, whilst Harte would oversee the integration of Carlton and Granada’s businesses.
Whilst Elstein is taking his proposals to ITV shareholders, some of whom are keen to remove Green and Allen, his plans to launch a venture capital-backed takeover for the combined ITV business appear to have been shelved.
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