Andrew Murray-Watson: Google is not solely to blame for TV's woes

Broadcasters should look closer to home to solve their problems
Click to follow

Andy Duncan, the chief executive of Channel 4, said last week that he expected Google to make more cash from British advertising this year than his own company.

Everyone knows that Google is a big noise, but Mr Duncan's comments that the internet company would pocket £900m in revenues in this country this year, against Channel 4's £800m, really highlighted just how powerful the unstoppable search engine has become.

One button push away on the remote control, the shadow of Google looms even larger at the leaderless ITV. Executives at the troubled broadcaster see Google as one of the main reasons why its advertising revenues are flakier than a Coronation Street plotline.

If you listen to the Mavis Wiltons at ITV (sorry, no allowances will be made in this column for those who don't watch Coronation Street), you might believe that companies want to advertise less on the small screen because they have to promote themselves on the internet with the likes of Google instead.

But the reality might be very different. Rather than Google driving down television advertising, it is looking more likely that it is actually the structure of the TV advertising market that is fuelling Google's revenue growth.

Puzzled? Let me explain. Under a complex system called the Contracts Rights Renewal (CRR) remedy, advertisers are able to scale down the amount of money they spend with ITV in direct proportion to falls in the broadcaster's share of the audience.

In particular, CRR gives advertisers and media buyers the right to renew their contracts with ITV on a rolling annual basis, adjusted for changes in the broadcaster's audience, with no reduction in the discounts they receive for pre-booking airtime.

As ITV's audience share declines, advertisers look around at other commercial broadcasters and allocate part of their budgets to them instead. But here's the rub: because advertisers have more places to put their money, they can successfully negotiate lower rates as channels intensify their efforts to secure ad revenues. The total TV audience may remain constant but advertisers are able to get more bang for their buck or, as is more likely the case, the same bang as before but for less of a buck.

This means that advertisers can maintain their television presence and have cash left over. And where does this spare cash go? Google.

Hence one can argue that it is CRR which is having a deflationary impact on TV advertising, and not the mythical power of the internet. So it is simply not good enough for TV broadcasters to shrug their shoulders and whinge about Google.

But Mr Duncan did have it spot-on last week when he said that the downturn in TV was not cyclical but rather like "global warming" - in other words, here to stay and likely to get worse.

There is simply not going to be any upturn in ad revenues, or there certainly won't be until the whole British television industry sits around a table and fully examines all the implications of CRR. In the meantime, as ITV slowly sinks into the CRR quicksand, its rivals are unlikely to come to the rescue.

But CRR is not the only reason why the likes of Sky, ITV and Channel 4 are feeling the heat. Give any 16-year-old a choice of giving up the TV or their PC and I would confidently bet it is the TV that gets put up for auction on eBay.

ITV might help its cause a bit if it made programmes people wanted to watch. But ask anyone at the company what will help its ad revenue and an honest answer will echo Mavis's famous catchphrase: "I don't really know."