Media Analysis: Let the Negotiations Begin
With ITV1's audience decline set to be matched by a fall in share of spend, Andy Fry asks who will be the big winners.
It has been a stinker of a year for TV ad sales. Even ITV1's coverage of the World Cup failed to boost overall revenues for the year, with media agencies claiming that spending on ad spots will be down 6%-7% year on year to pounds 3.34bn.
As for next year, buyers are generally predicting a static market. Optimists suggest there might be a 2% rise, but in light of online growth, even they are not staking their all on it. One buyer fears a repeat of this year's 7% decline.
Of all the channels, ITV1 has been hit hardest. With audiences sinking to record lows in July and failing to make a meaningful recovery at the start of the autumn, agencies believe the channel is looking at a 13% revenue fall for the full year, including a startling 20% decline for the fourth quarter.
Its plummeting audience share is of particular concern for parent group ITV plc now it has begun airtime negotiations for 2007 with advertisers and their media agencies.
Contract Rights Renewal (CRR), introduced in 2003, means the amount ITV1 can charge advertisers is linked directly to its audiences for the previous year. If ITV1's audience share falls, advertisers can reallocate a share of their budget elsewhere within the TV system.
Buyers estimate that this year's negotiations will result in about pounds 120m-pounds 150m of share being reallocated next year. This will create something of a feeding frenzy among TV sales houses, and the UK's biggest buyers believe ITV's digital channels and Channel 4 will benefit most (see panels below).
ITV blames its downturn in part on CRR for reducing its trading flexibility - and there is an argument that the scuffle for CRR leftovers has diverted the industry from pursuing an effective joint-marketing agenda, thus depressing TV's share of all media spend.
Indeed, the Institute of Practitioners in Advertising believes CRR has 'encouraged a laziness in the approach by other broadcasters, which have focused their sales policies on acquiring a share of CRR movement'.
Even more serious is the suggestion by one buyer that CRR is not only handcuffing ITV1, but actually devaluing TV overall by making it too cheap.
Channel 4 sales director Andy Barnes accepts that taking share out of a premium channel such as ITV has a domino effect. But he refuses to be despondent. 'People are watching more TV than ever and there is great product on both ITV and Channel 4. The message to advertisers has to be that TV is fantastic value. Our job is to stimulate demand by demonstrating what the medium can do.'
With ITV1 still holding more than 45% of the spot ad market, no buyers and few advertisers want CRR to be abandoned. But there is a growing realisation that the entire trading system needs to be reviewed. 'If there is a review, it can't just cover CRR and ITV1,' says ZenithOptimedia head of TV Chris Hayward. 'We need a broader reassessment of the whole airtime market.'
DATA FILE - SPOT REVENUES Sales house Revenue Share (pounds m) (%) 1 ITV 1530 45.9 2 Channel 4 800 24.0 3 Sky Media 400-410 12.2 4 Five 275 8.2 5 IDS 185-190 5.7 6 Viacom Brand 75-80 2.4 Solutions 7 GMTV 54 1.6 Total 3340 100 Source: Agency estimates for 2006
ITV1's slide in spot ad revenue has to be offset against rapid growth in the broadcaster's digital business (up 33% in the fourth quarter to pounds 40m) and non-spot revenues. …