Granada and Carlton urge cut in fees after merger plea fails

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Carlton and Granada are to seek a reduction in their broadcasting licence payments after the Government yesterday rejected a plea from the industry regulator to allow the companies to merge. In the face of a collapse in advertising revenue, the Independent Television Commission had called for emergency legislation to change the rules that bar a merger of the two main ITV players.

As well as pursuing the case for an early merger, the ITC, Carlton and Granada, will lobby for the £300m a year paid for licences by the ITV companies to be cut.

Sir Robin Biggam, the ITC's chairman, in a speech on Wednesday night said the "massive turn down" in advertising meant that the commercial sector would no longer be able to compete with the BBC, which has a guaranteed income. He said that waiting for the Communications Bill to become law, which is expected to remove the bar on a single ITV company, could take until 2004, which would be "too late".

"As a regulator, our hands are tied. We are governed by the current legislation, which in key areas such as media ownership is hopelessly outdated at a time when flexibility is required to meet the market and technology changes," Sir Robin said at an ITC-hosted dinner in Edinburgh.

A merger of Carlton and Granada would give them 90 per cent of ITV and would provide cost-savings benefits and, they argue, protection against foreign takeovers. The Incorporated Society of British Advertisers yesterday wrote to Government to reiterate its opposition to a single ITV. Its 300 member companies fear that would lead to an increase in the price of airtime.

James Heath, a Granada spokesman, said: "We support Sir Robin's call for serious consideration to be given to early reform of the media ownership rules. It is a significant intervention."

Whereas the BBC, under a settlement from 1999, is guaranteed an annual inflation-busting increase in its income from the licence fee, it is thought that ITV advertising sales are down 20 per cent this year. The regulator is concerned this will damage programming budgets. "The ecology of public service broadcasting in the UK has been based on the ability of the commercial sector to keep the BBC on its toes with programmes of originality and quality. This balance could be seriously damaged without immediate action and well before Ofcom [the new regulator] is up and running."

A paving Bill to the main Communications Bill is currently going through Parliament, which will create an embryonic version of Ofcom, the new super-regulator to govern the broadcasting and telecommunications industries. The ITC would like to see changes to media ownership rules tacked on to this legislation.

However, a spokesperson for the Department of Culture, Media and Sport, said: "The Government understands the importance to business of getting ahead with changes, but it needs to get the legislation on media ownership right.... It is neither practical nor desirable to deal with this issue piecemeal."

Even if barriers were removed on a single ITV company, any Carlton-Granada merger would still need to get past competition regulators. A combination of the two would give them around 55 per cent of the TV advertising market. ITV sources said the Government must also consider emergency action to ease the burden of the annual fees paid for broadcasting licences, which were agreed before the downturn hit hard. The 10-year licences assume annual advertising revenue growth of some 3 per cent. Primary legislation means that once fixed, the fee levels cannot be varied.

One ITV player said: "In other industries, regulatory settlements can be reopened in exceptional economic circumstances. Why not in this industry?" This change could also be introduced to the paving bill for Ofcom. The source said a precedent was provided by the BBC, which saw its financial settlement brought forward to allow it to tackle the financial demands of the digital era.