Supplementary letter from ITV
NOTE ON
CONTRACTUAL RIGHTS
RENEWAL
The Committee contacted ITV asking for further
information on the operation of the Contract Rights Renewal (CRR)
remedy, which currently regulates the price of ITV airtime sales.
We are delighted to have the opportunity to respond to the committee
on this matter.
CRR was adopted in November 2003. It was devised
as a remedy to deal with the loss of competition within ITV caused
by the merger of Carlton and Granada.
As is widely recognised, the period since 2003
has been one of profound change for the UK television. No one
foresaw then the speed of the digital/multichannel revolution,
nor how quickly it would change the broadcasting landscape in
the UK and the viewing habits of the nation. As such, it seems
absurd to us that such tight scrutiny of one part of the market
is being maintained whilst another is expanding rapidly with neither
restraint on advertising, nor requirement to invest in UK Plc.
The period has also seen significant changes
in the supply of and demand for TV advertising, transforming the
landscape for ITV and its customers. ITV1's share of Net Advertising
Revenue fell below 40% for the first time ever in 2007 (a factor
in causing Ofcom to bring forward its PSB review) with the Channel's
airtime now considerably more substitutable than in 2003. And,
of course, other outlets for advertising spend have developed:
Google, for example, is set to outstrip ITV1's advertising revenue
next year.
In this transformed environment, CRR is constraining
ITV's ability to respond to market changes. It requires ITV1 to
fulfil terms in contracts that reflect market conditions in 2002
and constrains ITV's ability to negotiate terms that reflect changes
in those market conditions. In addition, it has contributed to
price deflation—the price of UK airtime has fallen from
the most valuable to the cheapest in Europe over ten years—which
in turn is limiting ITV's ability to invest in content.
It is also causing unintended distortions in
ITV1 scheduling and programming, which is both negatively affecting
the financial performance of ITV1 and operating against the interests
of ITV viewers and advertisers.
ITV is currently working closely with Ofcom
and the OFT as part of the timely joint review the two Regulators
now have underway. The Company is seeking to persuade the OFT
and Ofcom that the scale of the changes since 2003 and the length
of time that CRR has been in place (far longer than was envisaged
originally—CRR has been through five "deal rounds"
without review) mean that CRR is no longer appropriate and ought
to be abolished.
If the OFT and Ofcom are not persuaded of that
view, ITV has asked them to consider other measures that might
achieve the Regulators' objectives, whilst alleviating the constraints
and distortions currently created by the outdated CRR.
We are grateful to your Lordship's committee
for its interest in this issue and would be delighted to provide
further detail if required.
28 May 2008
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