Crunch time nears for the television gamblers

Shares in ITV companies will either soar or crash in the next six weeks, writes Cathy Newman

Investors in ITV companies will learn within the next six weeks whether they have been right to gamble on potentially huge reductions in the levies television companies have been paying the Government for the past four years. If right, profits could soar - if wrong, the frothy share prices in the sector could look hopelessly out of touch.

Key to the multi-million- pound gamble is the imminent publication by the Independent Television Commission of the procedures and timetable for renewing broadcasters' licences. A document to be published in the next six weeks will give a clear idea of when licences can be renewed and whether a reduction in some broadcasters' payments to the Treasury is likely.

The ITC's move might seem premature: licences for the 15 Channel 3 franchises and GMTV were awarded for a 10-year period starting from 1993 and could theoretically run until the end of 2002. But if broadcasters renew at the earliest opportunity, the new terms would come into effect as soon as 1999.

Early licence renewal is a priority for many companies as present payments vary wildly for each franchise, from Scottish Television's "licence to print money" - an annual fee of pounds 2,000 or pounds 5.50 a day - to Carlton's pounds 46m yearly levy.

The wide spread of payments to the Treasury reflects the terms of the controversial ITV licence auction four years ago, which handed the right to broadcast to the highest bidder. As a result broadcasters paid as little as they felt they could get away with. Companies which guessed correctly that they would face little competition put in a token bid while those in a genuine race ended up paying through the nose.

STV and Central both paypounds 2,000 annually because they didn't have to outbid other broadcasters. By contrast, HTV's pounds 22m contribution each year reflects a tough contest against three other contenders.

High bidders such as HTV, Carlton, GMTV and Yorkshire-Tyne Tees Television will aim for an early renewal and a substantial discount, perhaps as much as 50 per cent, on theircontributions. Those happy to sit tight are STV and Central and those which are undecided, the "sensible bidders", are likely to include Anglia, Granada, and LWT.

The ITC's chief executive, Sir Peter Rogers, has indicated he will look fairly favourably on ITV companies wanting to reduce their fees. In evidence to the National Heritage select committee in February, he said: "As cable and satellite grows ... and as digital terrestrial grows and as digital satellite grows and so on, the likelihood must be that what would be paid at tender from 1 January 1999 will be lower than it was when we made that decision in 1991."

ITV companies have 101 reasons why their fees should come down. Chris Stoddart, managing director of GMTV, which paid 55.7 per cent of its net advertising revenue (NAR) to the Treasury last year according to ABN Amro Hoare Govett, said Channel 5, satellite and cable were eating away at his audience share and the value of an ITV licence should be reassessed. He said: "We're paying more than twice as much as any ITV company as a percentage of our NAR. We also have a breakfast time franchise, so we're not making drama which can be sold on to other channels."

The prospect of the phasing out of the Channel 4 funding formula, which boosts ITV coffers by more than pounds 70m annually, is also putting pressure on ITV's finances.

But many in the City are openly hostile to ITV's plight. Alastair Smellie, media analyst at ABN Amro Hoare Govett, is typical: "Why would a Labour government with fairly aggressive spending plans want to give back money to the ITV companies which are making pretty good profits? There is extraordinary inequality in the licence fees, but the bottom line is that ITV broadcasters are paying for a monopoly."

Many feel the levels of reduction expected by some companies are over- optimistic. One analyst said: "Built into YTTV's and HTV's share price is the expectation of a 50 per cent reduction. But it's just not going to happen."

Granada's statement in March that it would not bid for YTTV "unless there is a material change in Yorkshire's circumstances", reflected the feeling that YTTV's share price had been pushed up by an expectation of a substantial reduction in the licence fee, "realisation of which is far from certain".

Although YTTV's shares are well off their peak of 1,315p at yesterday's close of 1,127.5p they still trade at almost twice their value at the beginning of last year.

Even if the ITC proves as good as Sir Peter's word, the issue of how new terms should be agreed is a thorny one. Chris Rowlands, chief executive of HTV, says programming costs in his franchise are higher than in other regions as the company broadcasts separate services for Wales and the West of England. "We'd like to see a licence-by-licence renegotiation which would take into account the individual circumstances of each franchise," he said.

Other licensees would like a more uniform approach to fees. YTTV has consistently called for a level playing field, where all television companies, including satellite broadcasters such as BSkyB, should pay the same levy, set at around 14 per cent of their total revenue.

Nick Castro, financial director of YTTV, said: "We've been advocating a situation where all broadcasters contribute on a fair basis towards any Exchequer requirements." This charge, YTTV estimates, would give the Government the pounds 400m it currently gets from the Channel 3 levy.

The ITC document is unlikely to make specific mention of Sky, although the competitive situation and the proliferation of alternative digital, cable and satellite channels will almost certainly be taken into account.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
News
i100
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas