Even soaps can't clean up as the power shifts to TV advertisers

It was enough to make Vera Duckworth weep. In the week when shareholders gave their approval to Carlton and Granada's long-awaited ITV merger, Cadbury threatened to tear up its £10m sponsorship of Granada's Coronation Street. The confectionery giant has sponsored the country's most-watched programme for the past eight years, and the deal is the single biggest earner in commercial television in the UK.

Tom George, deputy managing director of ZenithOptimedia, the largest media buying agency in the UK, says this kind of dispute is nothing new. Both sides want to get the best possible terms and negotiations become feverish at the year end as companies' annual advertising budgets are hammered out and contracts come up for renewal. But this year, thanks to the conditions for the ITV merger imposed by the Government, the balance of power has shifted for the first time from the broadcasters to the buying agencies.

One of the biggest obstacles to the merger of Carlton and Granada was the fear that it would lead to higher advertising rates. The two broadcasters command over half of all TV ad revenues, which was why the Competition Commission introduced the Contracts Rights Renewal. Under CRR, any dispute must be referred to the communications regulator Ofcom and its new adjudicator, David Connolly.

The broadcasters must also freeze rates at last year's levels. Because the audience share for commercial terrestrial television is declining, this is not surprising. However, advertisers and media buyers can appeal to the adjudicator for rate reductions based on how far audiences shrink.

Mr George at ZenithOptimedia says: "CRR has taken away an element of brinkmanship. In the past, the ITV companies were in a better position to make ransom demands. They could tell agencies that if they did not agree terms, they would tear up the agreement on 31 December, when it expired. Now, if there is still no agreement, the contract continues into the new year while Ofcom adjudicates. This has strengthened the hand of the media-buying agencies."

The change in ITV advertising rules has also had an impact on Sky and other broad- casters, say media-buying agencies. Because negotiations with ITV are extended under CRR, this has stopped some advertisers reaching agreement with other broadcasters by the year end.

Media agency MindShare, whose clients include Kellogg, has yet to agree a new deal for 2004 with Sky. One of the biggest spenders on TV advertising, Unilever, has also pulled its advertising on Sky while its agency, Initiative Media, agrees rates for 2004 with the broadcaster.

Cadbury says the Coronation Street delay has been caused by its appointment of a new media buying agency, Starcom Motive, in October, and the disruption caused by the ITV merger.

Whatever the case, Mr Connolly will have his work cut out when, inevitably, he is called into action. ITV admits privately that it is resigned to receiving less than the £10m it received last year from Cadbury because of the new rules. The world of advertising is as cut-throat as ever. But this year, the advertisers are fighting back.