I'm an ITV shareholder, get me out of here

As ITV's search for leadership continues, we examine the ongoing chaos surrounding the broadcaster

If only their programs were this entertaining. For those of you who've yet to tune into the long running soap opera that passes for corporate strategy at ITV these days, here's a quick recap of the recent storyline. Be warned, this is a bit like trying to summarize who's been sleeping with whom in Coronation Street. It's hard to keep track of all the names.

This episode began in April when the Executive Chair of ITV, Michael Grade, said he wanted to give up the executive bit of his job at the end of the year but remain as chairman. Grade, a former BBC chairman and chief executive of Channel 4, has been at ITV since 2007, during which time the share price has dropped 80 per cent. But the company had big problems before he arrived, largely due to the fallout from the ITV Digital fiasco. Launched as ONdigital in 1998, it collapsed in 2002, forcing its two parent companies, Granada and Carlton to merge to form the present company, ITV plc. The factors leading to the failure were, in no particular order, aggressive competition from Sky, dodgy technology, inept marketing and the cost of live football.

Since then successful digital ventures (like Sky Digital and Freeview) are busy competing for the advertising revenue that had previously flowed through terrestrial channels. Audience share and advertising revenues have slumped since 2003. When Grade arrived he announced he would win them back with new quality programs. The flaw in the plan was that they didn't have enough money to make them. Then the credit crunch happened, which further damage advertising revenue. In March, ITV's share price hit a low of 18p, down from 117p in April 2007.

After Grade's announcement, the board began the search for a new chief executive. First they had their eye on HMV's boss, Simon Fox, but he jilted them once negotiations reached an advanced stage. Then they turned their attention towards the former chief executive of BskyB, Tony Ball. Ball has the reputation of being a bit of a hardcase, with a speciality in efficiency savings. All of which appealed to ITV's institutional investors, no doubt sick of watching their returns drop with the ratings. The negotiations went on for weeks. And then at the end of last month came the news that talks had broken down. The board let it be known Ball was asking for too much money; £42 million over five years plus share options that could be worth eight figures, they said. Ball's supporters, the major shareholders, said he was only asking for the same salary as Grade (£90,000) and the company's fortunes would have to improve considerably for the options to be worth that much. The day the deal broke down Grade announced he would resign as chairman.

So now the beleaguered broadcaster must fill both top jobs. The board has started looking for a new chairman, whose first job will be to find a chief executive. Last week their first choice, the former CEO of Reed Elsevier, Sir Crispin Davis ruled himself out. Apparently he felt the job was too high profile. Then their second choice Sir Michael Bishop, the former chairman and owner of British Midland Airways (BMI) said he wasn't interested. Meanwhile ITV's chief operating officer, John Cresswell is to take the chief executive role on an interim basis. He will leave the company when a permanent appointment is made. Cresswell had been thought of as an outside bet for the role. Other names still being reported include Apple's head of European operations, Pascal Cagni; and Peter Fincham, director of television, channels and online content. There have even been mischievous suggestions in the press that the board might be forced to make apologetic overtures to Tony Ball.

Ordinarily, when a big company shows such poor leadership rumours of a takeover start to circulate. But this is unlikely for several reasons. First, none of the other major media companies have enough money in their back pocket . Second, ITV's shareprice has risen to 46p, following the recent rise in the equity markets. This assumes that because big companies have recovered some of their value they're going to want to splash out on advertising. In other words, many market analysts think ITV is over priced. Added to which, investors are aware that the problems at ITV reach beyond the fiasco at the top. Whoever takes over will inherit a chalice poisoned by regulatory restrictions. When ITV plc was formed in 2003, after the merger of Carlton and Granada, a complex mechanism (called contract rights renewal, or CRR) for determining how much the stations was allowed to charge for advertising was established. It was designed to prevent the new company from monopolizing advertising and exploiting its privileged position on the network. It effectively froze the amount ITV could charge at 2003-levels. Not only that, it established a formula whereby the amount the channel is allowed to charge for adverts is tied to the ratings. As a result, if the ratings drop so too must price quoted to advertisers. Grade had long been lobbying for the removal of these restrictions. He argued that, with the proliferation of digital and online competitors, ITV no longer enjoys the same dominant position. Earlier this year the Office of Fair Trading recommended a review. But last month Competition Commission ruled that the restrictions would remain with only minor alterations. It accepted that the market had changed but found that ITV "remains crucial for advertisers looking to reach large numbers of viewers, particularly if this needs to be done rapidly."

Given that the company is effectively forced to fight in an ever fiercer market with one arm tied behind its back it might be forgiven a shameless pursuit of ratings. Can we expect more Ant and Dec, more X-Factor, and much less of the expensive stuff that fewer people watch, like news and drama? No, because ITV actually has both its arms tied up. As a public service broadcaster there are also restrictions on the content of its programming, which take the form of quotas. A certain proportion of its output must be devoted to news, childrens show, religious programming etc. Ridiculously, they are even legally obliged to show the budget live. The budget is a televised shopping list. As pure televisual entertainment it's right up there with watching test cards. Not even the chancellor of the exchequer would watch the budget were he at home and not boring himself in the chamber. It's fine for the BBC to be required to show that sort of thing. They have the license fee to fund it, they could launch a BBC Paintdry channel and it wouldn't matter so long as there was a credible public service excuse. But ITV has shareholders, it's supposed to make money. They should be given a chance to do so. Which means they should be regulated by the Office of Fair Trading or Offcom but not both.

All you need to know about ITV

  • The ITV network was formed by the Television Act of 1954.
  • The same act created the Independent Television Authority to oversee the network, a forerunner of the Office of Comunications (Ofcom).
  • It is not to be confused with ITV plc. An independent company established by the merger of Granada and Carlton in 2003.
  • Four companies currently hold licences to broadcast over the network in different parts of the UK and the Channel Islands.
  • ITV plc holds the licence for England, Wales and the English-Scottish border regions.
  • STV hold the licence for Central Scotland, STV north for Northern Scotland, Ulster Television (UTV) for Northern Ireland and Channel Television Ltd. for the Channel Islands.
  • The network also includes a national franchise which broadcasts from 6am and to 9.25am and is currently held by GMTV.
  • In the past, many different companies have held these licences.
  • They have been reallocated at "franchise rounds", the most recent of which was in 1993.
  • There followed a period in which many of the companies gradually merged, for example: in 1992, Yorkshire Television acquired Tyne Tees Television to create Yorkshire-Tyne Tees Television, only for this entity to merge with Granada Television in 1997.
  • Since 1998 each of the four network companies have also been given capacity on Digital Terrestrial Television (DTT).
  • This is able to carry more than one channel.
  • At present all the licensees opt to broadcast the ITV plc. owned channels ITV1, ITV2, ITV3, ITV4 and CITV.
  • In 1998 ITV launched ONdigital.
  • It was rebranded ITV digital in 2001 and ceased in 2002.

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