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Tuesday, 27 August, 2002, 15:37 GMT 16:37 UK
Advertisers bring more ITV gloom
A possible ITV merger will leave a sour taste for advertisers
Torin Douglas

It doesn't get any better for the advertising-strapped commercial TV companies.

No sooner had the share prices of Carlton and Granada recovered a bit - on a Financial Times report that they planned to work more closely together - than the country's biggest advertisers cried "foul" and "over our dead body".

Then Sir Martin Sorrell - the highly-influential head of WPP, one of the world's largest advertising and communications groups - announced there was no sign of the long-awaited recovery this autumn, and it might not even arrive till 2004.

It turned out that the improvement in May and June - on which so much hope had rested - had been a World Cup one-off. Just what ITV, Channel 4, Channel 5 and the rest did not want to hear - particularly ITV.

Cafu with the World Cup
The World Cup did not rescue ITV's fortunes
The ITV companies are caught between a rock and a hard place - between the City analysts and the advertisers.

The City wants a merger between Carlton and Granada, so they can cut costs, sort out ITV's strategy and performance, and boost profits. Hence the sharp rise in the companies' share prices last week when Carlton's chief executive Gerry Murphy told the FT of plans to combine parts of their operations.

"What we're trying to do is manage it as a virtual enterprise" he said, acknowledging that a full merger was unlikely to be accepted by competition regulators for at least two years.

Within hours, advertisers - through their trade body ISBA - had leapt on both parts of this statement.


They welcomed the acceptance that a merger would be blocked by the competition authorities: "It is the first time that a senior ITV representative has publicly recognised this point."

And they expressed concern that "closer working ties between Carlton and Granada could represent an attempt to 'merge by stealth'."

In particular they are concerned that the pooling of operations could lead to the two companies sharing information about their advertisers. That, they fear, could be a form of collusion that would reduce competition in the sale of airtime, allowing Carlton and Granada to manipulate advertising rates.

London Stock Exchange
City investors want a merger
Were that to happen, ISBA would complain to the regulators.

In other words, advertisers are likely to oppose anything Carlton and Granada do to try to sort out ITV's problems. And they're not expected to help by spending more money on advertising either, if Sir Martin Sorrell's analysis is right.

WPP owns three of the world's largest advertising agency networks - Ogilvy & Mather, J. Walter Thompson and Young & Rubicam. It has just declared a 17 per cent decline in profits and this very gloomy prognosis for the ad business:

"It seems unlikely that significantly improved performance will occur in 2002 and that any recovery will have to await 2003 or, perhaps, even more likely 2004, when the US presidential election and the Athens Olympics will begin to have a positive effect on media markets."

So things could still get worse, before they get better.

This column also appears in the BBC magazine Ariel. Nick Higham is away.

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19 Aug 02 | Business
09 Jul 02 | TV and Radio
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