Thursday, May 3, 2007

Advertisers stop worrying about ITV - there's Google...

A version of this piece was published in Marketing in 2007

Far back in the mists of time, two giants of the media world wanted to merge.  The advertiser and agency industries were up in arms – this would result in higher rates they argued, and they feared the abuse of a dominant position would be inevitable.  After all, ITV had few fans in the media buying community, and was widely regarded as arrogant and complacent (never a good combination).

A high price was sought to permit the marriage of Carlton and Granada, and Contract Rights Renewal was born – a formula that ensured advertisers wouldn’t be penalised if they reduced investment in ITV as audiences fell.

Four years on, and many in the industry are now arguing for the formula to be abandoned, or substantially recast.  ITV no longer has such a dominant position in UK media, and the system is threatening its very survival.

So when Sky stepped in to buy 17.9% of ITV last year, it looked like a tactical move to head off Virgin’s media ambitions, and a logical investment for a content and distribution business to make.

Richard Branson claimed that the deal ‘distorted competition’ – but most saw this as the foot-stamping of the spurned suitor, and not the big deal it might have been five years ago.

But now there’s news that Ofcom and the OFT have thrown their weight behind a move to refer Sky’s shareholding in ITV to the Competition Commission.

ITV’s 2006 numbers make interesting reading.  Under the heading “Strengthening ITV1 and growing digital channels”, the press release owns up to a 12% reduction in ITV1’s revenue and a 5.4% slip in adult audience.  Whilst ITV clearly hope that no-one will read beyond the headline, the harsh reality is clear – ITV is no longer the 500lb gorilla it once was.

Hardly the behemoth of competition legend.

Perhaps more interesting is what all this reveals about the state of thinking amongst UK media executives and regulators. 

There’s a continued obsession with the old world that obscures the real impact of the new.  A group of people who have grown up with TV as the highest-profile medium are now responsible for legislation, regulation and management of that medium, and whilst they can’t have missed the decline in profits (Channel 4’s profits fell 70% in 2006, ITV’s fell 18%), all this competition commission talk starts to look like so many birds arguing over a carcass.

ITV made £375m profit in 2006.  In the first quarter of 2007, Google made 16% of their revenues from the UK.  Assuming they made 16% of their profits here too, that’s £108m.  Even if Google failed to grow at all in the subsequent three quarters (pretty unlikely), they’ll make more profit than ITV and C4 combined this year.

Look at the audience picture, and the gap is even starker.  Together, the ITV channels’ share of commercial impressions was 39.1%.  Google on the other hand has a 79% share of UK searches (Hitwise), and most observers agree it’s got a bigger share of revenue.

So is all this fuss being made about the wrong guy?

I’m not suggesting that Google should be the subject of competition commission investigation.  But ITV is a minnow in comparison, and its likely future significance to UK media is lessening by the day.

Last week saw both the launch of Joost (a potentially industry-changing internet TV player) and the approval by the BBC Trust of the iPlayer.  Apple TV has launched, the BBC are working with YouTube, MSN, Yahoo, AOL and Google are all pushing into this space.  The competitive landscape of our TV future is going to be fought out over the internet, and the players will mostly be global.

Increasingly then, ITV is not just a weaker player in TV, it’s a weaker player in media overall.  But as long as UK media is regulated by looking in the rear-view mirror, the composition of ITV’s share register is still going to look like something we should worry about.