Watchdog stands firm on ITV adverts 'straitjacket'

Rules governing how much advertisers are charged cannot be removed

ITV faces a three-week battle to convince the UK's competition watchdog to remove the straitjacket on its ability to charge for advertising after what analysts called a "disappointing" initial ruling yesterday.

The Competition Commission has decided against making significant changes to ITV's Contract Rights Renewal undertakings, which limit the money ITV can receive from advertising if its audience falls. The regulator did indicate it would welcome a review into the regulation of the advertising market as a whole.

Diana Guy, the commission's deputy chairman and chairman of the CRR review group, said that despite the decline in ITV's share of viewers and advertising, the broadcaster remained "crucial for advertisers looking to reach large numbers of viewers". She added that since the changes in the market had not increased the bargaining strength of the advertising agencies, "it is therefore our view that the remedies have to remain in place".

Speaking at the commission's London headquarters yesterday, Ms Guy said: "ITV is still in a strong position compared with everyone else, even if it wasn't as strong as years ago. We think CRR has been an effective remedy."

The watchdog will consult for the next three weeks on its decision as well as "some variations" on the rules and then hopes to publish its final decision by the end of the year.

ITV was measured in its response and plans to put its case to the regulator during the consultation period. Michael Grade, ITV's executive chairman, said: "We look forward to engaging with the Competition Commission over the next three weeks to identify which post-CRR option best serves the interests of ITV, its viewers and advertisers."

ITV will have to work hard to change the regulator's mind after Ms Guy said yesterday's proposals were "pretty indicative of our decision".

The regulator is worried about the law of unintended consequences. "CRR is a complicated remedy because the way advertising is sold is complicated. If you pull one brick out the whole thing could collapse," Ms Guy said.

The CRR was first introduced in the wake of the merger of Carlton and Granada that created ITV to protect advertisers from the loss of competition. A spokesman said yesterday that times had changed and there were now many suitable alternatives for advertisers. In 2007, Mr Grade called the system a "straitjacket".

Toby Syfret, of Enders Analysis, said: "ITV will almost certainly hope for more. It will be a disappointment but can't have been hugely unexpected for the company. Some new points should help rather than hinder."

Ms Guy was open to a wider review, saying "maybe there should be a fundamental review" of the advertising market, but the commission cannot initiate investigations. The Office of Fair Trading first looked into CRR in 2006 and handed the review over to the commission in May. With this decision, the regulator has rejected OFT calls to relax the rules.

ITV is expected to name Tony Ball, the former BSkyB chief executive, as chief executive this week as Mr Grade steps back to become non-executive chairman.