ITV boxed in by faulty vision: Skin-deep rule changes have left the network as vulnerable as ever to hungry rivals

AT 8.30 on Wednesday morning, most of the powerful executives in British television could be found hovering around the fax machines at the headquarters of the 14 ITV companies, awaiting an announcement from Peter Brooke, the Secretary of State for National Heritage.

'It was awful,' said the chief executive of one ITV group. 'It was like the franchise awards all over again.'

The reference was particularly poignant. One morning just over two years ago, four ITV companies learned they were to lose their franchises, a handful of others found they were saddled with high cash bids that have since proved almost impossible to sustain, and another two - Scottish and Central - were given back their licences for an annual fixed payment of just pounds 2,000.

The franchise bidding was created by the 1990 Broadcasting Act, a piece of legislation so derided by the organisations in its ambit that it was dubbed 'out of date in 1989'. The Act enshrined the map of ITV first created in 1955 and hardly altered since. It also restricted takeovers between ITV companies, allowing any of the nine biggest to buy one of the six small companies and no more.

Publishers of national newspapers could buy 20 per cent of an ITV company and no more, even though Rupert Murdoch's News International was allowed to own 50 per cent of British Sky Broadcasting.

Once the dust settled on the franchise bidding process, the lobbying over changes to the takeover rules started. It ranged from the 'stay the same' brigade - led by Anglia, HTV and Lord Hollick's Meridian - to the 'desperately seeking reform' group, whose most public proponent was Leslie Hill of Central. An unholy alliance of Associated Newspapers, Pearson, Guardian Media Group and the Telegraph pressed for an end to the restrictions on cross-media ownership.

David Mellor, who as the first Heritage Secretary was much loved by TV moguls, lent an understanding ear. But the newspaper industry - notably the Mirror Group titles - loved him less and he had to resign. The mantle was passed to Mr Brooke, who had previously resigned from the Northern Ireland job after singing 'My Darling Clementine' on an Irish chat show.

Mr Brooke set out to be the listening minister. He met all the TV moguls, the publishers and other interested parties.

But given the results, it appears he listened to only two of the many people who turned up: Michael Green of Carlton Communications and Gerry Robinson of Granada. The most powerful operators in ITV were given just what they wanted: the ability to buy another big franchise without price-upping competition from newspaper groups.

Two large franchises could merge, but they could buy no more. There would be a review of all takeover rules, but no time frame was given even for the starting date of this review. Andrea MacLean, head of information at the Heritage Department, said it was an 'evolution not a revolution' and a 'step-by-step process'.

Marjorie Mowlam, the shadow heritage secretary, said it was regulation that was five years behind developments in the TV industry. The Labour party proposes stopping all takeovers for a year while a thorough review of cross-media ownership takes place.

Her personal view is that special takeover rules for ITV are archaic. 'The only takeover regulation in TV should come from the Competition Act and the Monopolies and Mergers Commission,' she argued. 'Regional broadcasting and home- based production could be protected by having an ITC (Independent Television Commission, the TV regulator) with teeth.'

Ms Mowlam's ideas may look radical, but with a fairly hard-hitting report likely to be produced soon by the Heritage Select Committee and many in the industry clamouring for change, opinion is fast catching up with her.

Carlton is quite happy to say that it got exactly what it wanted. 'Carlton lobbied for the ability of large licences to merge,' said Peter Ibbotson, its director of external affairs. 'We cannot argue against there being further change, especially in the area of cross-media ownership, but it is not for us to fight these battles.'

As it stands, Carlton is able to buy Central, where it has owned a 20 per cent stake since before Mr Brooke was a twinkle in Baroness Thatcher's eye. Many blueprints for a regulatory structure would have made things difficult for this deal, as it brings together the two largest franchises.

And as LWT is now prevented from buying Yorkshire Tyne-Tees, where it bought a 14 per cent stake earlier this year, it now looks as if it will fall prey to Granada, which bought a 20 per cent stake in a dawn raid this summer.

There may be other mergers - MAI is hungry for a deal to supplement its 51 per cent stake in Meridian and might alight on HTV, and Scottish TV's Gus MacDonald was quoted as saying he was 'peering over Hadrian's Wall waiting for the opportunity to invade'.

But the expected rationalisation of ITV will not occur. The minimum number of ITV companies left after all the bidding will be eight, so the process of arriving at decisions within the industry will only be slightly less fraught than it is at the moment.

And, as nobody will want to take over the tiny franchises of Grampian, Westcountry, Border and Ulster - which contribute little to the network and whose profitability largely depends on the bigger companies subsidising their programme costs - they will become increasingly marginalised.

The us and them structure of ITV will be amplified - with divisions between rich and poor, programme makers and programme providers, conglomerates and independents.

'The structure that you could end up with is two strong sisters, an indifferent sister and a gaggle of crippled cousins,' said Tom Chandos, media expert at Botts & Co, the niche corporate finance house.

Many in ITV argue that this structure would do nothing to solve the problem of ITV's declining competitive position. For years ITV was a monopoly, controlling all TV advertising and even that on Channel 4. But with the increasing success of Sky, the growth of cable TV, and Channel 4's success since it started selling its own advertising airtime, it is a declining force. The more forward-thinking ITV executives have argued that the federal structure of the network needs to be reformed radically if it is going to arrest the decline.

To this problem must be added the pace of technological change: newspaper information is becoming available in electronic formats; digital compression is making it possible for a multitude of channels to be broadcast, where one is currently available; and all sorts of media are being sent down telephone lines. It therefore seems that the Heritage Department is storing up a host of problems for ITV.

For instance, all TV studios will soon have to gear up for digital technology. It is an expensive process. A company like Grampian would be concerned about whether the investment would be worthwhile given its slim programme output.

Two external events will also change the picture. The BBC's charter is up for renewal in 1996, and there may be radical changes bringing advertising in some limited form. And in 1998, the restriction stopping British Telecom from entering TV will be lifted, freeing potentially the most dangerous competitor of all.

The change in the regulations - coupled with the ending next month of the moratorium that stops outside takeovers of ITV companies - is sure to bring some superficial changes to the ITV structure. But there may be some that are more deep-seated.

According to senior sources, both Bertelsmann, the German media group, and the French water company Generale des Eaux, which has a large stake in the satellite TV group Canal+, are preparing bids for ITV companies. Such a move would provide a massive jolt to the sector.

'You have all these backwoods MPs who want to protect their regional TV station because they are interviewed on it,' said a leading publisher. 'God knows what their reaction would be if a foreigner came and took it over.'

Mr Brooke appears to have dropped the ball in the game of regulating TV. How big a mess he has made of it will only become apparent when the Europeans move in.

(Photographs omitted)