Licence review set to net ITV firms millions in licence review

ITV companies are set to boost their profits by tens of millions of pounds a year if preliminary talks with the Independent Television Commission about the early renewal of their licences are successful. The Channel 3 companies are trying to secure reductions in the levies they give to the Treasury, with some seeking to halve their payments.

The prospect of sharply reduced licence payments for ITV companies will highlight the value of television companies in a sector where share prices have already soared on takeover speculation.

Commercial broadcasters which made high cash bids in 1991 to ensure their existing franchises were retained are likely to benefit most from the licence renegotiations.

Analysts reckon that HTV, the ITV company for Wales and the west of England, could end up paying as little as pounds 10m-pounds 12m for its licence compared with a current annual levy of pounds 24m. On a similar basis Yorkshire-Tyne Tees could see its total franchise payments slashed by over pounds 30m. Other companies set to gain include United News & Media, holder of the Meridian and Anglia licences; Carlton, owner of the weekday London licence; and GMTV, the breakfast television operator.

"This will completely revalue ITV companies," said a senior industry source familiar with the talks.

The Government receives pounds 400m a year in payments from the 15 regional ITV franchises and shareholders in GMTV. But under ITC rules the lower levies could kick in as early as the start of 1999 - four years before the current 10-year licences expire - and run until 2009.

Companies like Scottish Television and Carlton-owned Central, which bid just pounds 2,000 to retain their existing franchises back in 1991, are expected to wait until 2003 before seeking to renew their licences with the ITC.

"Senior staff are looking at this issue," an ITC spokeswoman said. "No business plans have been submitted yet but we would expect to see some before the end of this year."

The ITC has the power to re-advertise licences to outside bidders if no deal on renewal payments is reached with existing ITV franchise holders.

In practice, though, compromise is in the air. "It is in everybody's interest to reach an agreement," said the industry source. "We fully expect a significant licence reduction, it is just a question at what level."

Those sentiments have been echoed by recent statements from the top brass within the ITC. Sir Peter Rogers, its chief executive, told MPs last month that he expected the level of payments to come down when the licences were renewed. Sir George Russell, the ITC chairman, is on record as saying the cash bids ITV stations made in the discredited auction six years ago years ago are antiquated and should be scrapped.

Growing pressure to cut the amount of ITV money going to the Treasury reflects the significant competitive changes that have occurred in television since the contracts were awarded in 1991.

In particular, the ITC will take account of the phenomenal growth of satellite and cable channels, as well as the phasing out of the Channel 4 levy, the imminent launch of Channel 5, and, by the end of this year, 200-channel digital television.

Both HTV and Yorkshire are prime takeover candidates. Lord Hollick's United News & Media sits on a 29.9 per cent stake in HTV - the maximum allowed without triggering a full bid - while Granada has 27 per cent of Yorkshire and has made no secret of its desire to acquire its neighbour across the Pennines.

The problem for potential bidders is estimating how much their target's licence is worth if annual levies are slashed. Bidders could end up having to pay a lot more than they originally planned, sources suggest.

The soaring value of ITV licences contrasts sharply with the situation in 1991 when HTV was forced to bid pounds 20.5m to retain its franchise against three rivals and some analysts thought it would struggle to survive.

Instead, the shares have been one of the best performers on the stock market, rising from a low of 14p in 1992 to Friday's closing price of 361.5p. It will today announce a production alliance with Warner Brothers.