OFT Agrees To Consider Review Of CRR
The Office of Fair Trading has said it would agree to consider a review of the imposed Contract Rights Renewal (CRR) on ITV.
According to reports, the broadcaster, which has challenged the restrictions following the Carlton/Granada merger, has finally persuaded the OFT to think about looking at the case.
The OFT said it would make a decision on whether it would launch a review of the trading mechanism, which limits how much the broadcaster can charge advertisers on ITV1, before the end of the summer. If the OFT decides the trading cap warrants looking at, Ofcom is likely to conduct the review.
The move is the first tangible progress ITV has made in its attempt to persuade the market that CRR is unfair. Last October, ITV referred the CRR to the Office of Fair Trading in a bid to get it scrapped (see ITV Refers CRR To OFT).
It also marks an achievement for Michael Grade, the new executive chairman (see BBC Chairman Jumps Ship To ITV Top Job), who called for an urgent review into CRR in March at ITV’s AGM, blaming the mechanism for a dramatic slump in profits and advertising revenues at ITV last year.
In March, Grade bemoaned ITV’s lack of innovation as the broadcaster announced a decline in full-year pre-tax profits from £311 million to £288 million.
In a financial statement, Grade said: “There is a lack of innovation in our programming, partly resulting from a fear of ratings failure and the punitive consequences that follow under the Contract Rights Renewal remedy.”
ITV’s turnover for the year to 31 December 2006 was £2.18 billion, compared to £2.19 billion in 2005, whilst the broadcaster’s total revenue for the year was £2.18 million compared to 2.19 million in 2005 (see Grade Says ITV Lacks Innovation As Profits Decline).
CRR was proposed by ITV to ensure the merger of Granada and Carlton into ITV went ahead. It was suggested to counter fears ITV would behave in a monopolistic manner as a result of the merger and the creation of a single ITV and ITV sales force.
At the time, ITV represented just over 50% of commercial airtime sales. Since the merger in 2003, ITV1’s audience and revenue have slipped at a more rapid rate than those of ITV overall.
It is believed that rather than propose CRR is abolished, Grade will suggest a modified formula, an idea that will sit far more easily with advertisers and agencies, who will argue ITV will abuse its power in the market if the mechanism is abolished altogether.
At last year’s annual MediaTel Question Time, panellists suggested that ITV must get rid of the CRR if the broadcaster is going to survive in the modern world.
Richard Eyre, chairman of the IAB, argued that ITV had to get rid of the CRR. “The television industry has got to let them get rid of CRR otherwise they will just lop the top off ITV,” he said.
Phil Georgiadis, founding partner of Walker Media, was also highly critical of the CRR. “There’s a massive issue at the moment, which is because of CRR. If you wanted to support ITV in their quest to drive better programming, investing more with them can’t generate a better return because they have no more return to give,” he said from the floor.
“Normally if you invest more you expect to get more, they can’t give you more. Getting rid of CRR is a good idea with one big proviso or health warning: agency deals have to come under the scrutiny of Ofcom first,” he continued.
Georgiadis said that agencies were nervous of scrapping the CRR. “If you’re faced with trading with ITV without CRR, you’re in a very weak negotiating position,” he said. “ITV represents 40% of the revenue at the moment [including the likes of ITV2 and ITV3] and it knows that the agency dealer cannot walk away from 40% of the revenue and say ‘I don’t want to trade with you’ (see
MQT: ITV Must Scrap CRR 2% Of TV Ad Revenues ‘Disappear’ From The Market Because Of CRR).
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