TV Franchises – The Deadline Arrives
At 12pm today,the current and prospect- ive TV franchise holders will hand over their fates, sealed in brown envelopes, to the ITC and begin the long wait until October for the verdict.
The new method of auctioning off the nation’s TV franchises was set in motion by the Peacock Committee’s 1986 report on advertising on the BBC. The idea was adopted by Tory advocates of the free market, and was incorporated into the 1989 broadcasting White Paper.
The system reached legislative fruition in the 1990 Broadcasting Act,based on a blind auction and a non-negotiable cash bid. The much-touted “quality thresh- hold” took on a more significant role in the final version of the Act but the cash bid remains the prime determining factor; the highest bid will only be be over-thrown in ‘exceptional circum- stances’.
The new system has proved contentious, fuelling much industry criticism. The sale of the ten year franchises could raise around £3.5bn for the government; bidders have already ploughed as much as £50m into consultants’ fees alone.
The sums of money being pledged are sizeable, and this at a time of static revenues and negative profits. In drawing up their financial plans, bidders have had to estimate advert- ising revenues, competition, viewing trends, the government in power, whether the BBC will take advertising after 1996, the effect of the proposed central scheduler, the state of the economy – all up to 2003.
A recent report from stockbrokers Gilbert George estimated that incumbents may end up paying two or three times their current Exchequer Levy in order to retain their franchises. It is hardly surprising, therefore, that many expect a stringent round of cost cutting to follow hard on the heels of the franchise awards. There is a fear that the significantly greater sums of money which will be committed to win and maintain a franchise could also spark a spiral of rising advertising costs.
TV companies will become increasingly aware of their financial position, and may become significantly more expensive to run as a result of high bids and heavy debts.
In a recent Media Week report, Cowan Kemsley Taylor’s Charlie Makin and Josh Dovey expressed concern that media inflation on TV could outstrip that of any other medium as a result: “From 1993, C3 franchise holders will have a far freer hand in establishing a more aggressive pricing policy, especially for areas which have a natural competitive advantage … The way in which TV franchises are awarded will not reduce advertising costs in real terms, and is, in fact, likely to increase them.”
The new financial burden which may be placed on franchise holders is likely to lend itself to the establishment of publisher/contractors, along the lines of Channel 4. Many companies are expected to take on the role of news and advertising sales services, buying in programming from independent producers (perhaps those old ITV companies who have lost their licence). Groups submitting proposals along these lines will be able to cut overheads and pledge more cash for their bid, and analysts believe that the knowledge of this could prompt the more vulnerable incumbents to overbid.
It must be acknowledged, however, that the Broadcasting Act and the ITC’s contract specifications load the scales heavily towards the traditional, vertically-integrated producer- broad- caster.
Bids for the country’s most valuable and prestigious franchise, Thames, are expected to go as high as £50m, including the 11% of ad revenue that must be paid to the Treasury. Four days a week in London were worth more than £250m of ad revenue in 1990,and Carlton Communications announced last night that it was after this slice of financial action
Carlton is the TV empire of Michael Green, and owns Britain’s biggest independent producer, Zenith. With between three and six franchises expected to go to newcomers, Carlton is hotly tipped to take a franchise.
Other favourites to snatch a licence include MAI Broadcasting, the TV division of the international services company, which has operations in 23 countries. MAI, the main player behind Meridian Broadcasting, has confirmed to MediaTel that it will be restricting its application to the TVS and TV-am franchises.
Once the post-bidding dust has settled, one thing is for certain – the winners will be a new breed of corporate animal.The growing emphasis on finances will have a long lasting effect, not least on the cost of TV advertising.