ITV: What next?

By BBC News Online's Iain Rodger

The battle for control of ITV is set to produce one company reigning supreme within the next few years, but before then the current three major players must reorganise themselves into two.

UK Trade Secretary Stephen Byers has left the companies concerned to fight it out between themselves, but he has laid down some ground-rules to follow as they trade blows.

I suspect they'll all carve up the assets among them, and there'll be some interesting deals

Martin Clark,
media analyst

Essentially, these come down to guidelines aimed at shaping how much of the overall market they can control - for the time being at least.

This means we are about to witness a potentially fascinating tactical battle between Granada Media - which benefits most from Mr Byers' ruling - Carlton and United News & Media.

Even more fascinating is the prospect of foreign media companies entering the fray.

There has been speculation that Luxembourg-based RTL, which owns 65% of Channel 5, could be about to make a bid for one of the UK players, possibly United News & Media, which itself holds the other 35% of Channel 5.

RTL's director of strategy is Richard Eyre, a former ITV chief executive and now Channel 5 chairman.

Industry analysts have also tipped France's TF1 and Italy's Mediaset, 49% owned by Silvio Berlusconi, as potential bidders.

Shake-up

Some analysts are saying Mr Byers' ruling, based on Competition Commission recommendations, throws the balance between the three major UK players in the air.

Carlton and United had agreed a merger back in November, which now looks unattractive because Mr Byers has told them that if they join forces they must sell south coast broadcaster Meridian.

This is the very franchise Granada would most like to get its hands on.

ITV franchises - who owns what

Granada:
Granada, LWT, Yorkshire, Tyne Tees

Carlton:
Carlton London, Carlton Central, West Country

United:
Anglia, Meridian, HTV

Martin Clark, fund manager with PDFM, a leading shareholder in Carlton and United, said: "They've got to renegotiate the terms but I don't think they will in the way we expect them to.

"I suspect they'll all carve up the assets among them, and there'll be some interesting deals."

Certainly, there is a widespread expectation that Carlton will demand improved terms to merge with United or call off the deal.

United is expected to argue that even without Meridian their combined forces would be enough to dominate ITV.

Some analysts believe Granada will itself make a hostile bid to acquire Carlton, although that would also mean selling off a major franchise to meet regulatory conditions.

Time to plot

Under Takeover Panel rules, the three companies have up to three weeks to deliberate before they must declare their hands.

Whatever the outcome of this stage of ITV evolution, if the UK's oldest independent commercial network is to survive in the world of new media it will have to evolve quite rapidly into one broadcasting company.

For this, the law will have to be changed, and legislation under preparation for the next Parliament is already looking into this issue.

As commercial alternatives to ITV proliferate, the channel's overall audience share is likely to fall to the point where the effects on competition of single ownership are no longer deemed significant.

At that point, the prolonged trial of strength will see one victor take all.