ITV And The Role Of CRR In 2006

Following reports of poor performance by the nation’s largest commercial broadcaster, ITV, Leigh Yoxall, TV Group Director at Starcom Mediavest, looks at the implications of the Contract Rights Renewal for the coming year…

When ITV chose to combine their Carlton and Granada sales teams, the rationale was to save a huge amount of money and to reinvest this cost saving to improve programming. On the face of it, this was an excellent thing for the consumer and one that was initially greeted with optimism by advertisers.

The potential issue that the Government, and hence advertisers and consumers, could have faced was that ITV would be in too strong a position when dealing with advertising revenue, which is consistently over £3 billion per annum. Therefore, a measure was required in order to remove this threat and ensure a more even playing field. This measure was called the Contract Rights Renewal mechanism, or commonly the CRR.

ITV and agencies have accepted CRR, which basically uses ITV’s audience performance as a benchmark for investment. That is to say that if ITV performs poorly then advertisers can reduce their investment, without any loss of value or quality. Needless to say since 2004, the effect of CRR has seen a marked impact in the fortunes of ITV1; see chart below.

Although broadcast revenues have grown year-on-year, ITV has seen ad revenues on the main channel reduce by a startling £165 million.

This however, is not a true and accurate position as ITV has made a concerted effort in growing their multi-channel offering. Indeed ITV2 has grown into a very credible station and with ITV3 and 4 launching in the last two years, this has helped offset the loss in revenue from the main channel.

Also, whilst the current city view is one of pressuring ITV into de-merging the present broadcasting and production operations, as a whole, ITV plc stands as a hugely profitable organisation.

The company’s operating profit is currently £325 million, up 49% on 2003 following increased advertising revenue and cost savings, as the merger has worked to reduce overheads.

In terms of 2006, ITV will again see a reduction on their main channel – estimates suggest that they will lose circa £100m this year, regardless of the World Cup in June. However on a more positive note ITV plc will probably retain around 35% of the revenue lost from ITV1 by securing investment into their digital channels ITV2/3/4 and this figure could be in the region of £40m.

ITV has also actively shaken up things internally to redress this, with more onus being focussed on ‘beyond the spot’ revenues. Sponsorship, interactive and online revenue streams (with the recent £120m acquisition of Friends Reunited) are serious strategic objectives in 2006.

There is no doubt that ITV are gearing themselves up to lobby hard against CRR. ITV’s new sales boss, Ian McCulloch called the Contract Rights Renewal mechanism a set of “unrealistic fossilized deals.” Also, there is now a harder edge in terms of key personnel at ITV and extricating the company from the terms of CRR is going to be high on their agenda.