CRR – Will it stay, will it go?

Jim Marshall, Starcom Mediavest’s executive director and chairman of the IPA Media Futures Group, on the possible outcomes of the Competition Commission’s ruling on Contract Rights Renewal.

It is likely that the Competition Commission will announce its ruling on Contract Rights Renewal (CRR) this week. Current speculation suggests that it will propose a ‘hybrid’ solution, which will relax the rules for ITV but maintain some protection for advertisers.

OK, but firstly the timing and likely outcome of the review are still largely speculative.

Secondly, if the CC does decide that the CRR should be revised, it will almost certainly pass it back to the OFT/Ofcom to recommend changes and manage the introduction of new CRR regulations.

So unfortunately, even if the CC does pronounce this week, it is unlikely to be the end of the long running CRR saga. It’s more likely to be only the beginning of the end, and we would face some months yet of further debate and consultation.

Of course, if the CC proposes either no change to CRR or a complete end to it, then that will be it, but neither of these courses of action seem likely.

So what is likely to happen?

Personally I would expect to see some changes announced and hope that it is relaxed or at least modified, while still maintaining some protection for advertisers.

Why not end it entirely?

All of the evidence to date still shows that advertisers still need some protection from the full force of an unregulated ITV (in spite of Ofcom’s clear desire to help the broadcaster). This is because of the continued lack of substitutability of ITV peak time.

Then why modify it?

In my view, CRR does need some pretty extensive reworking and even arguably a programme to phase it out entirely.

When it was first introduced, it did initially work well, but as the market has developed and, significantly, as the recession has hit revenues, it has become overly punitive for both ITV and the overall TV market. Additionally, the problem is that is has effectively ‘frozen’ the way the market trades, based on a 1990’s model. In the last few years we have seen the television sector become increasingly dynamic, particularly with the emergence of new digital channels and services. TV is and should be treated as a multi dimensional medium , while CRR is entirely one dimensional.

Whether the CC will concur with my view is difficult to predict and largely irrelevant given the overall body of evidence they have been sifting through.

What is relevant however is how quickly any change in CRR will take effect. For example, will it apply to 2010 trading? If so, how will the other broadcasters and sales houses respond? And will we see a gradual shift in the way the market trades or will there be immediate and wholesale changes?

In theory, a change to CRR could be introduced easily in time for 2010. But in practice, given the bureaucratic process needed to change CRR, it may not be possible to effect changes in time for 2010 trading, which would be extremely frustrating, particularly for ITV.

What will happen very quickly is a response from other broadcasters. If it is in any way anticipated that ITV’s power in the market will increase, we should expect other sales houses to look to combine. For example, a Channel 4 and Sky combination appears to be already provisionally agreed and we should expect other broadcasters, such as Five, to look to partner up. It will probably result in a form of ‘sales house musical chairs’, with a probable end result of three major sales houses emerging, almost back to the days of three ITV sales houses!

Finally, how quickly will television trading change?

Again difficult to predict. However, ITV especially needs the model to change in that it needs to move away from a ‘blanket’ station average system of trading and, most importantly, start to leverage its peak-time programming product. This of course is what advertisers fear most, a situation where access to the best peak programmes becomes prohibitively expensive.

But for ITV, particularly in the current economic environment, it does need to introduce changes and very swiftly.

If the competition commission makes its pronouncement this week, we should expect that this will just be the start of the change to CRR.

Of course, it’s still tempting to argue for no change, but irrespective of all the arguments from the various interested parties (ie advertisers, ITV, other TV companies, agencies etc) and arguments for the need for a balance in power between seller and buyer, the current system of CRR is antiquated, one dimensional and fundamentally dull.

Any revision to CRR needs to be carefully thought through but for buyers and sellers alike, the world will be a more interesting place if it is now modified and eventually disappears.

Do you agree with Jim? Send us your opinion – news@mediatel.co.uk