ITV seeks new deal on advertising regime

ITV is willing to accept new regulations on the price of its advertising slots if regulators lift the current controls.

The broadcaster, under the new leadership of Michael Grade, who presented the company's 2006 results yesterday, also revealed for the first time that it had objected to competition watchdogs about the acquisition of a 17.9 per cent stake in ITV by its rival BSkyB.

For more than a year, ITV had been lobbying hard for the removal of a regulatory mechanism called Contracts Rights Renewal (CRR), which punishes the company financially for its loss of audience. Yesterday Mr Grade conceded that it was "not realistic" to ask for CRR to be removed without "some alternative" being put in place.

"CRR makes us risk-averse. What was designed as a deterrent for misbehaving in the market has become a punitive measure for failure. It requires us to deliver instant success in every programme in every time period, and that's not how you get great new innovative programming," Mr Grade said.

CRR was put in place by regulators in 2003 to protect advertisers from the dominant market position of ITV1. Although the channel has continued to lose market share, as a consequence of the poor viewing figures for its programmes, it still commands more than 40 per cent of the television market. Mr Grade will make his case today directly to advertisers, in a speech to the annual conference of ISBA, the trade organisation for Britain's leading advertisers. He did not provide any details of an alternative, suggesting a new scheme would emerge in dialogue with advertisers.

Advertisers indicated yesterday that it would be tough to persuade them to abandon CRR, which has reduced the cost of commercials.

Bernard Balderstone, associate director of UK media at Procter & Gamble, the biggest television advertiser, said: "Do turkeys vote for Christmas? Advertisers won't volunteer for something that raises the price of television."

He said that any replacement for CRR would have to take account of the market power of ITV's other channels too. "You can't just remove CRR from ITV1 without looking at ITV as a whole," Mr Balderstone said.

Ian Armstrong, manager of customer communications at Honda, said it was up to ITV to come up with a replacement for CRR. "Why should advertisers propose anything when we have a good mechanism in place to protect advertisers? I'm not sure that the abolition of CRR is the solution to ITV's programming difficulties," Mr Armstrong said.

Mr Grade did not use his first major public appearance as executive chairman of ITV, after two months in the job, to outline a radical new strategy. He did admit that the company's programmes had, in the past, become "creatively bankrupt".

But he was confident that better shows were now coming through, under a new programming team, and he said he was working with commissioners on content for next year and beyond. In particular, he wanted better dramas for the 9pm slot, which he said had been lost to BBC1.

On Sky's stake in the company, Mr Grade broke with the position of the previous management of ITV, which had been neutral or mildly positive about the shareholding.

He said ITV had made submissions to a regulatory inquiry pointing out that the size of Sky's stake was large enough to potentially block major corporate activity, such as mergers or acquisitions that required the backing of 75 per cent of shareholders. As not all shareholders tend to vote, if Sky used its stake it could be enough to block such deals. "This may not be in the interests of ITV's sharehold- ers as a whole," Mr Grade said.

ITV reported that 2006 sales had been flat, at £2.1bn, with the company's controversial interactive and phone-in services providing revenues of £101m. Underlying operating profit crashed 18 per cent to £375m. ITV1's advertising revenues were down 12 per cent, at £1.3bn, but the company's digital channels recorded a 41 per cent rise to £157m.

The company warned it was "probable" that ITV1's revenues will decline again in 2007. In the first quarter of this year, ITV1's advertising sales were down 9.2 per cent. ITV shares closed down 3 per cent at 108p.