The problems concern the disparate sizes of franchise bids; the failure to finalise the commissioning system; the unexpectedly difficult economic climate; and the looming threat of takeover bids from British and European companies.
Some companies secured their franchises with bids of as little as pounds 2,000 per year, while others are paying more than pounds 40m, depending on whether there were competitors. The differences have led to inevitable tensions within ITV's federal network.
The Network Centre, which will have responsibility for programme commissioning from October, has only just come into being. The arrangements that govern commissioning, originally set out by the Independent Television Commission, were overturned by the Office of Fair Trading in December and revised terms were agreed only yesterday. It may well be the end of 1994 before the new networking arrangements work satisfactorily.
All the franchise applications were costed in May 1991. At that time it was widely believed that the economy, already deep in recession, would recover by 1992. We all took heart from the optimistic statements of the Prime Minister and Chancellor of the
The ITC used a growth rate of 4 per cent to judge the franchise applications, nearly twice the most optimistic current forecast for 1993 and 1994. The unforeseen length and depth of the recession is bearing down heavily on independent television companies as they organise to compete with an independent Channel 4 and BSkyB with its six channels - vociferously promoted by the Murdoch press, which has been quite disgracefully allowed to remain under the same ownership.
The BBC, with its two national networks, has not been subject to quite the same economic buffeting as ITV. In other words, the going is a lot tougher for ITV companies in 1993 than anyone at Westminster or in the industry could reasonably have anticipated in 1991. Yet we are now nine months away from the end of a moratorium on takeovers that could bring a free-for-all rush by European interests to acquire British regional broadcasting companies.
I have no objection to companies in Europe being able to acquire British companies, but I do object to this happening before those companies have fully established themselves. Furthermore, I object to foreign companies being able to acquire British companies when we are prevented from having the same access to their markets. An extension of the moratorium would command widespread support from ITV companies.
It is necessary, too, to look at other structural problems within the ITV system. Under the current arrangements, small regional companies with a lower advertising earning power pay a reduced contribution to the network. In 1993 and 1994 this benefit will be some pounds 24m per year. This arrangement extends only until the end of 1994. Without it, the financial position of many small companies would be severely undermined and their futures imperilled.
Under the present terms, companies cannot seek a review of their cash bids until 1999. This means that for the next six years the network could be destabilised by the wide variation in bid levels. If these reviews can be brought forward, small companies suffering from the phasing out of beneficial networking arrangements could seek a compensating cut in their cash bid.
At the same time it would be appropriate to look at ownership rules within Britain. There are two categories of ITV companies: the nine 'large' companies and the six 'small' companies. Any of the nine may buy any of the six or vice versa, but none of the nine may buy each other. These arrangements, unique, I believe, to the independent television industry, stand in the way of its proper development, since they prevent the natural coming together of companies into larger, more efficient units.
With the inevitable growth of satellite and terrestrial stations, ITV's share of the market will fall and even the largest ITV company will, by the end of this decade, probably account for just 7 per cent of the total UK market. These companies would be undersized on a national basis and minnows on an international scale. While ensuring that unique regional obligations are protected, companies should be allowed to come together into larger groups to compete internationally.
As a first step, I would like to see an extension of the moratorium on takeovers until 31 December 1996. This would give ITV companies a further period of stability during which the system's structural problems could be addressed.
The beneficial arrangements for smaller regional companies should be extended to the same date. Further, companies should be given the option to request a review of their licences, in particular the cash bid level, from 1 January 1997 and, on the same date, the current ownership rules should fall away, allowing mergers between companies of whatever size. These arrangements would go a long way to dealing with the serious structural anomalies that have arisen.
The big nine ITV companies measured by advertising revenue. Present rules bar mergers between these companies:
Anglia, Carlton, Central, Granada, HTV Wales/West, London Weekend, Meridian, Scottish, Yorkshire
The little six companies, which are allowed to merge with each other or with one of the big nine:
Border, Channel, Grampian, Tyne Tees, Ulster, Westcountry
Lord Hollick is chairman of Meridian Broadcasting, which took over the ITV franchise for South and South-east England on 1 January with a bid of pounds 36.5m.