ITV proposes merger with Channel 4 and Five to create broadcasting giant
ITV has drawn up a radical plan for a three-way merger with Channel 4 and Channel Five that would prompt one of the biggest shakeups in British broadcasting history.
Executives from ITV, which is expected to report a huge drop in profits when it unveils its annual results for 2008 next week, believe merging the UK's three main advertiser-funded commercial broadcasters may be the only way to guarantee its survival in the face of the most challenging market conditions for a generation, MediaGuardian.co.uk can reveal.
ITV executives are thought to have outlined the plan to government along with several other options.
An ITV spokesman confirmed that the broadcaster is looking at "a number of radical ideas" as part of its response to communications minister Lord Carter's interim Digital Britain report.
One of ITV's proposals is to roll the three main advertiser-funded commercial channels – ITV1, Channel 4 and Five – into one, creating a broadcasting giant which would rival the BBC in scale and scope.
This combined operation would save hundreds of millions of pounds by merging back-office functions and cutting jobs, which would allow it to continue to invest in programming across its three main terrestrial channels and smaller digital outlets, including ITV2, Film4 and Five USA.
However, the new broadcaster would control well over 60% of the British TV advertising market, and the government would have to set aside competition law for the merger to take place. It would also infuriate commercial rivals, most notably BSkyB, in which Rupert Murdoch's News Corporation is the largest shareholder, which would face a powerful new competitor.
One of ITV's alternative proposals is to turn Channel 4 into a fully fledged public service broadcaster that would no longer be funded by advertising.
The assumption behind this option is that a significant proportion of Channel 4's commercial revenue would then flow to ITV, which is suffering from a dramatic fall in advertising as the economy deteriorates.
An ITV spokesman said: "ITV is currently preparing its response to the government invitation to all parties to undertake blue-sky thinking on the future of public service broadcasting.
"Every broadcaster, along with the government and Ofcom, is therefore seeking radical solutions to the problem of how to provide sustainable, guaranteed public service competition to the BBC.
"ITV is fully engaged in that debate, which must include exploring all options for the future, including a number of radical ideas."
ITV is widely expected to confirm that revenues have fallen by up to 20% in the past few months when it updates the City next Wednesday, 4 March.
Both options have been described as "seismic" by industry sources, and may be designed to drive home to the government the scale of the crisis ITV is facing.
ITV executives, led by chairman and chief executive Michael Grade, are trying to persuade the government to remove more of its expensive public service obligations and abolish the contract rights renewal regime, which governs airtime trading deals with advertisers.
The radical ITV proposals are likely to feed into Carter's final Digital Britain report, due to be published in early summer.
Last month Carter's interim Digital Britain report backed the idea of creating a new commercially funded public service broadcasting body, with Channel 4 at its heart, to provide competition to the BBC.
Carter and media regulator Ofcom have both indicated that their preferred way of achieving this is a partnership between Channel 4 and BBC Worldwide, the corporation's commercial arm.
The next most favoured option is a merger between Channel 4 and Five – or possibly another media company, including ITV.
Yesterday Carter revealed that other companies apart from Five were interested in a tie-up with Channel 4. "Have we had approaches from other private sector parties that look on paper to have come up with ideas that could work? Yes we have," he said. There are rumours that US media companies are examining a bid for Channel 4.
Under the terms of its terrestrial licences issued by Ofcom, ITV must make a proportion of programmes outside London and produce local news bulletins, although it has already implemented plans to reduce its regional news output.
Many of those PSB commitments have already been scrapped but ITV is also calling for the removal of CRR, the system that caps how much advertisers pay for airtime on ITV1. CRR was put in place when Carlton and Granada merged to form ITV plc in 2003 to assuage the concerns of advertisers worried that the new company, which at the time controlled more than 50% of British TV advertising, would abuse its market power.
The new ITV/Channel 4/Five combine would wield ever more clout, but the fact it has been mooted at government levels demonstrates the dramatic decline in ITV's fortunes over the past year. ITV is likely to announce up to 500 redundancies from its 4,500-strong workforce next week, less than six months after the last rounds of job cuts, which led to the departure of 1,000 staff.
Like many large companies, ITV is also struggling with a growing pension fund deficit and there is a fear its share price could tumble again next week. ITV's share price has already tumbled from 140p at the time of the Granada/Carlton merger to 23p at yesterday's close and further falls could make it more difficult to service it debts.
The company is also likely to introduce measures previously ruled out by Grade, including trimming its £1bn programming budget in order to save costs. Some dramas, including an expensive remake of Passage to India and Wire in the Blood, have already been axed; while The Bill, a primetime fixture for more than 20 years, will soon be cut from two episodes a week to one.
ITV shares rose by more than 5% today as ITV's talks on a merger were confirmed. Shares in the broadcaster were trading at 24.5p just before 3.30pm, up from last night's close of 23.35p, a 5.38% increase.
James Robinson
Wednesday 25 February 2009 13.13 GMT
guardian.co.uk © Guardian News and Media Limited 2009
ITV has drawn up a radical plan for a three-way merger with Channel 4 and Channel Five that would prompt one of the biggest shakeups in British broadcasting history.
Executives from ITV, which is expected to report a huge drop in profits when it unveils its annual results for 2008 next week, believe merging the UK's three main advertiser-funded commercial broadcasters may be the only way to guarantee its survival in the face of the most challenging market conditions for a generation, MediaGuardian.co.uk can reveal.
ITV executives are thought to have outlined the plan to government along with several other options.
An ITV spokesman confirmed that the broadcaster is looking at "a number of radical ideas" as part of its response to communications minister Lord Carter's interim Digital Britain report.
One of ITV's proposals is to roll the three main advertiser-funded commercial channels – ITV1, Channel 4 and Five – into one, creating a broadcasting giant which would rival the BBC in scale and scope.
This combined operation would save hundreds of millions of pounds by merging back-office functions and cutting jobs, which would allow it to continue to invest in programming across its three main terrestrial channels and smaller digital outlets, including ITV2, Film4 and Five USA.
However, the new broadcaster would control well over 60% of the British TV advertising market, and the government would have to set aside competition law for the merger to take place. It would also infuriate commercial rivals, most notably BSkyB, in which Rupert Murdoch's News Corporation is the largest shareholder, which would face a powerful new competitor.
One of ITV's alternative proposals is to turn Channel 4 into a fully fledged public service broadcaster that would no longer be funded by advertising.
The assumption behind this option is that a significant proportion of Channel 4's commercial revenue would then flow to ITV, which is suffering from a dramatic fall in advertising as the economy deteriorates.
An ITV spokesman said: "ITV is currently preparing its response to the government invitation to all parties to undertake blue-sky thinking on the future of public service broadcasting.
"Every broadcaster, along with the government and Ofcom, is therefore seeking radical solutions to the problem of how to provide sustainable, guaranteed public service competition to the BBC.
"ITV is fully engaged in that debate, which must include exploring all options for the future, including a number of radical ideas."
ITV is widely expected to confirm that revenues have fallen by up to 20% in the past few months when it updates the City next Wednesday, 4 March.
Both options have been described as "seismic" by industry sources, and may be designed to drive home to the government the scale of the crisis ITV is facing.
ITV executives, led by chairman and chief executive Michael Grade, are trying to persuade the government to remove more of its expensive public service obligations and abolish the contract rights renewal regime, which governs airtime trading deals with advertisers.
The radical ITV proposals are likely to feed into Carter's final Digital Britain report, due to be published in early summer.
Last month Carter's interim Digital Britain report backed the idea of creating a new commercially funded public service broadcasting body, with Channel 4 at its heart, to provide competition to the BBC.
Carter and media regulator Ofcom have both indicated that their preferred way of achieving this is a partnership between Channel 4 and BBC Worldwide, the corporation's commercial arm.
The next most favoured option is a merger between Channel 4 and Five – or possibly another media company, including ITV.
Yesterday Carter revealed that other companies apart from Five were interested in a tie-up with Channel 4. "Have we had approaches from other private sector parties that look on paper to have come up with ideas that could work? Yes we have," he said. There are rumours that US media companies are examining a bid for Channel 4.
Under the terms of its terrestrial licences issued by Ofcom, ITV must make a proportion of programmes outside London and produce local news bulletins, although it has already implemented plans to reduce its regional news output.
Many of those PSB commitments have already been scrapped but ITV is also calling for the removal of CRR, the system that caps how much advertisers pay for airtime on ITV1. CRR was put in place when Carlton and Granada merged to form ITV plc in 2003 to assuage the concerns of advertisers worried that the new company, which at the time controlled more than 50% of British TV advertising, would abuse its market power.
The new ITV/Channel 4/Five combine would wield ever more clout, but the fact it has been mooted at government levels demonstrates the dramatic decline in ITV's fortunes over the past year. ITV is likely to announce up to 500 redundancies from its 4,500-strong workforce next week, less than six months after the last rounds of job cuts, which led to the departure of 1,000 staff.
Like many large companies, ITV is also struggling with a growing pension fund deficit and there is a fear its share price could tumble again next week. ITV's share price has already tumbled from 140p at the time of the Granada/Carlton merger to 23p at yesterday's close and further falls could make it more difficult to service it debts.
The company is also likely to introduce measures previously ruled out by Grade, including trimming its £1bn programming budget in order to save costs. Some dramas, including an expensive remake of Passage to India and Wire in the Blood, have already been axed; while The Bill, a primetime fixture for more than 20 years, will soon be cut from two episodes a week to one.
ITV shares rose by more than 5% today as ITV's talks on a merger were confirmed. Shares in the broadcaster were trading at 24.5p just before 3.30pm, up from last night's close of 23.35p, a 5.38% increase.
James Robinson
Wednesday 25 February 2009 13.13 GMT
guardian.co.uk © Guardian News and Media Limited 2009
