Fourteen years of gradual consolidation of the ITV Network will come to fruition on Monday 2 February, as the merger of Carlton Communications and Granada creates ITV plc.
The single ITV company was listed on the Stock Exchange this morning with a share price of XXXX. Shares in Carlton and Granada were delisted at the end of trading on Friday.
For ITV, this represents something of a fresh start. Regulatory changes, under the recent Communications Act, have allowed ITV to create a leaner structure, with lower costs and a more focused approach. This could prove to be a life-saver for the broadcaster.
It is expected that the merged company will benefit from cost savings of around £100 million. It could even be higher than this, according to some analysts. Merrill Lynch believes that even greater synergies could be found if ITV were to buy up the remaining five ITV licensees (Channel, GMTV, ITN, SMG and Ulster Television). However, such acquisitions would be subject to further competition scrutiny by the regulators.
Further savings may come from a reduction in the fee ITV pays for its licence, if Ofcom decides to renew the terms for ITV franchises from January 2005. This could lead to fall in licence fess of as much as 60%, although Merrill Lynch analysts are modelling for a 40% cut.
Ofcom is also due to review broadcasters’ public service broadcasting (PSB) obligations this year and there is a possibility that ITV’s obligations in this area may be relaxed. Currently ITV spends around £250 million a year on regulatory requirements and PSB committments. Merrill Lynch esimates that this may save ITV in the region of £25-£75 million, although this has not been factored in to the broker’s forecasts.
The broker also predicts that ITV1’s audience share decline will begin to slow. Over the last decade its share of viewing has fallen by 41%, but this is expected to slow to just 19% over the coming ten years.
The contract rights renewal system (CRR) – which links what ITV can charge advertisers with the station’s market share and audience ratings – is also likely to have some effect on revenue growth. Over the last decade, ITV’s advertising share has declined by 31%, but its share of commercial impacts is 38% lower, largely as a result of the falling audience share. The CRR will go some way to balancing this discrepancy.
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