Regulator agrees to review ITV1 advertising 'straitjacket'

Michael Grade, chairman of ITV, has cleared another major hurdle in implementing his recovery strategy for the broadcaster after UK regulators agreed to conduct a review of the regime that limits how much the company can charge advertisers on its flagship ITV1 channel, a mechanism that the media industry veteran has described as "a straitjacket".

The Contract Rights Renewal agreement was put in place in 2003 when Granada and Carlton merged to form ITV to soothe concerns that the enlarged broadcaster would abuse its dominant position in the commercial television market.

At that stage, ITV1 commanded a 50 per cent share of the television advertising market. The mechanism allowed the buyers of advertising airtime to roll over their pre-merger agreements and ties the amount that ITV can charge for advertising on its largest channel to ITV1's audience share, requiring the broadcaster to pay compensation to advertisers if its ratings decline compared to its rivals.

ITV has previously attacked the CRR regime, arguing it stifles competition as the channel is restricted in raising its prices to offset declining audience share. However, under Mr Grade, the broadcaster's ratings have stabilised, thanks to the success of shows such as Britain's Got Talent. ITV is due to update its programming strategy next week as it looks to improve its performance against the BBC and its main commercial rivals.

Yet over the past four years, the TV market has changed, with more viewers tuning into digital stations. That has resulted in ITV1's share of the advertising market declining to about 40 per cent and Mr Grade has called on regulators to drop the CRR regime, or alter it substantially, so ITV has more flexibility in pursuing its recovery strategy amid a tough environment for commercial broadcasters.

The pressure has paid off, with the Office of Fair Trading agreeing to a review of CRR that will be conducted in partnership with Ofcom, the media regulator. The review will kick off in January and will take at least a year. ITV has called on the regulators to speed up the process so it can benefit from any changes to the regime in 2009.

ITV said: "We welcome the OFT's decision to review the Contract Rights Renewal remedy put in place in 2003, prior to the Granada-Carlton merger.

"We will be making the strongest possible representations to the OFT to conclude the processes within a year from now, giving advertisers and commercial broadcasters the certainty needed to contract airtime and plan levels of programme investment for the calendar year 2009."

However, the broadcaster is likely to face opposition to the notion that CRR should be dropped, given its continued dominance of the commercial market. Channel 4 said it supports the continuation of the CRR regime in its current form "in order that ITV does not abuse its monopoly position in the TV advertising market. Until such a time as ITV1 delivers less than 25 per cent of total TV revenue, we believe that fair market -trading ... can only be maintained with the retention of current regulations, which are vigorously enforced."