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Does Grade have X Factor?

• Robert Peston
• 7 Mar 07, 08:15 AM

Michael Grade says that he’s found ITV in than he expected. But if that’s right, goodness knows what unspeakable horrors he actually anticipated.

On an underlying basis, pre tax profit in 2006 was £253m, down from £321m in the previous year.

Looking forward, ITV’s own television advertising revenues will actually be lower in the first three months of this year, because of a decline in its share of commercial impacts (a measure of how many people are watching) and the ghastly impact of Contract Rights Renewal (this is the framework for fixing what it pays for advertising that was put in place when ITV was created through the merger of Carlton and Granada).

However on a more positive note, the television advertising market may have stabilised: ITV expects a 0.5 per cent rise in total UK advertising (that for all broadcasters, not just ITV) in the first quarter of this year. But conditions are fragile, to put it mildly.

In no particular order of importance, these are the fairly fundamental challenges that confront Grade.

1) Extricate ITV from the middle of the life-or-death struggle between Virgin Media and BSkyB.

The ITV board has belatedly concluded that it’s not terribly comfortable with Sky owning 17.9 per cent of it. Not because Sky can micro-manage ITV on a day to day basis. But because it would have the power, through the votes attaching to its shares, to block any really big deal that ITV might want to do.

So if ITV actually wanted one day to merge with Virgin Media, which is far from impossible, well Sky could stymie that (based on the voting behaviour of ITV’s investors, ITV would find it difficult to secure the 75 per cent majority required if Sky were opposed to the deal).

ITV has raised its concerns with Ofcom and the Office of Fair Trading, which are investigating Sky’s ownership of the ITV stake. Sky won’t be delighted but probably not altogether surprised.

2) Restore viewer confidence in the pay-phone lines used in game shows and talent contests. This is one of the few revenue-streams at ITV that’s been growing, so it would be a disaster if recent negative publicity led some customers to stop voting for Tracy Starlette or her ilk.

3) Encourage ITV’s commissioners to take programming risks – even though the cost of a flop in terms of lost advertising revenue has escalated ever since the company implemented Contract Rights Renewal.

4) Cut bureaucracy.

5) Enlist advertisers and other television companies to support ITV in its campaign to persuade Ofcom and the OFT to replace Contract Rights Renewal with arrangements that lessen the sensitivity of ITV’s revenues to falls in viewer numbers.

6) Build up the newer digital channels and online businesses fast enough to compensate for the inevitable decline of ITV1 in a fragmenting media world.

7) Make a bob or three and keep smiling.

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