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ITV set to escape advertising 'straitjacket'

ITV has been handed a welcome boost by competition regulators, which yesterday recommended relaxing the advertising straitjacket imposed after the broadcasting giant was created through the merger of Carlton and Granada.

The Office of Fair Trading said that it would advise the Competition Commission to ease ITV's contract rights renewal (CRR) undertakings.

The CRR rules were imposed to address concerns that ITV would abuse its dominant position in the commercial market after the merger in 2003. The rules ensured that advertisers could reduce the amount they were committed to spending if ITV's audience shrank.

The broadcaster has argued that the CRR has led to underinvestment in high-quality, diverse programming that advertisers and viewers value. ITV boss Michael Grade called the system a "straitjacket" in 2007.

John Fingleton, OFT chief executive, said: "Our provisional view is that we should recommend to the Competition Commission relaxation of the CRR undertakings, whilst retaining safeguards for advertisers and media buyers."

Among the remedies it suggested removing the rules requiring ITV1 to roll over contracts.

A spokeswoman for ITV said the broadcaster "warmly welcomed" the case for change. "We will now be studying the detail of the recommendations and will work constructively with the OFT during the public consultation as it formulates its final recommendations to the Competition Commission.

"Since the remedy was introduced in 2003, ITV's position has changed and so has the wider market. This means it is now the right time to ask whether the remedy remains proportionate, or could be eased or removed," Mr Fingleton said.

ITV's share of commercial impacts has fallen from 45 per cent to 39 per cent since 2003, which led the regulator to say there are "more advertising campaigns which can now achieve their objectives without relying on ITV1".

The publication of the consultation document with the OFT's preliminary findings follows a year-long review of CRR alongside the broadcastingwatchdog Ofcom. It was launched following possible changes of circumstances in the sale of television advertising since 2003.

The regulator said: "The detrimental effects of the merger on the advertising market appear to have reduced," although it added that these affects "may not have been eroded completely". ITV1 is still the largest commercial TV channel, and at least some advertisers remain dependent on ITV1.

The consultation looks at a range of outcomes, from maintaining CRR in its current form to abandoning it altogether. It is now consulting before passing the report on to the Competition Commission, which will make the final decision.

In 2007, nearly £4bn was spent on television advertising in the UK. Despite the advertising industry hitting a severe downturn, the regulator said that television is the most important advertising medium after press. It accounts for 22 per cent of advertisers' budgets.

Carlton and Granada agreed to merge at the end of 2002. The Commission recommended undertakings to guard against a fall in competition over the sale of advertising, and CRR was proposed by the two companies merging. The move was designed to allow existing advertisers to renew the terms of their 2003 contracts for ITV1 without charge.

Analysts at Canaccord Adams said the move cleared up one of the main uncertainties over ITV. "Clearly, this is a positive development for ITV, allowing it greater freedom to price airtime on its flagship channel," they added.