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ITV PLC (ITV)

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Wednesday 29 June, 2005

ITV PLC

Response to Ofcom

ITV PLC
29 June 2005

29 June 2005

         Ofcom determination of financial terms for Channel 3 licences
                                ITV plc response



ITV plc welcomes the publication this morning of the financial terms set by
Ofcom with respect to each of its regional Channel 3 licences and GMTV.



Under the new terms for ITV plc's 12 licences (including GMTV), it is estimated
that payments for 2005 will be less than £80 million, a fall of £135 million
compared to total 2004 payments of £215 million.



The new terms also provide for further significant reductions in payments beyond
2005.  Licence payments are comprised of a fixed cash sum and variable payments
based on analogue advertising revenues.  Under the new terms, the annual cash
sum for ITV plc's licences (including GMTV) will fall from more than £70 million
in 2004 to £4 million from 2005.  Around 95% of 2005 payments will be comprised
of variable payments, which will reduce progressively with digital take up.  At
digital switchover, variable payments will fall to zero and total ITV plc
licence payments will be £4 million (in 2005 terms).



The new terms will also provide greater certainty in a number of key areas:



  • PQR payments will continue to be based on the proportion of UK homes which
    are analogue, not the proportion of viewing.
  • No PQR payments will be required with respect to ITV1 revenues from DTT
    homes.
  • No PQR payments will be required with respect to ITV1 revenues from the 3%
    of UK homes with analogue cable.



Commenting on the new financial terms, ITV plc Chief Executive Charles Allen
said:



'These terms mean a very significant reduction in licence payments for ITV plc
this year, with further steady reductions to come.



'Across ITV1, ITV2, ITV3, ITV4 and the ITV News Channel, ITV will invest around
£1 billion in high quality programming this year.  It is critical that ITV has
the firepower to sustain this investment and take forward its digital strategy.



'The last six months have seen the successful completion of the Ofcom PSB review
and now the review of financial terms.  But the modernisation of ITV regulation
is not complete, with a number of important issues still to be addressed.



'From BBC Charter renewal, Ofcom's review of the advertising market, the review
of the European Television Without Frontiers Directive, the future regulation of
new media platforms and the development of a new funding model for commercial
PSB, ITV plc looks forward to working with Ofcom and Government on the important
regulatory challenges which remain as we enter the digital age.'






NOTES TO EDITORS



1.        Licence payments are paid by Channel 3 licensees (ITV1 and GMTV),
Channel 5 and Teletext.  None of the channels operated by the BBC, Channel 4 and
BSkyB make any licence payments.



2.        Licence payments consist of annual 'cash bid' payments and variable
payments based on a percentage of qualifying revenue ('PQR') set for each
licence.  The cash bid is fixed in real terms.  PQR payments are paid only with
respect to revenues for analogue-only homes and therefore decline progressively
with digital take-up.  Ofcom's latest published figures indicate that less than
35% of UK homes are analogue terrestrial only.



3.        ITV plc's total payments for 2004 of £215 million include £204 million
licence payments and costs for ITV plc's regional Channel 3 licences, with the
balance made up of GMTV licence payments.  Ofcom reviewed ITV plc financial
terms following an application in December 2004.  The new terms will be
backdated to apply for the full calendar year 2005 and will run until the end of
2014.



4.        The review of financial terms involved the regulator assessing what
would have been bid for the licences in a 'hypothetical auction'.  The exclusive
focus was the Channel 3 (ITV1) licences, as opposed to ITV2 and other ITV
channels.  The valuation proceeded on the basis of each licence held in
isolation as a 'stand alone' business.  Benefits to ITV plc of holding the
licences in common ownership, which might have served to increase licence
payments, were stripped out of the valuation.



5.        Under the previous ITV1 licence payments, the regulator sought to
collect 75% of total payments over the licence period via PQR and 25% via cash
bids.  For those licences making PQR payments under the new terms, Ofcom has
increased the weighting towards PQR.  ITV plc licence payments will thus decline
more steeply to a lower cash bid base.  For any given level of 2005 payments,
licensees would expect to pay significantly less overall on a higher PQR
weighting.  The majority of analysts have forecast 2005 ITV plc payments based
on a 75% PQR weighting.



6.        Under the previous terms, the regulator collected PQR payments on
analogue revenues, estimated on the basis of the proportion of UK homes that are
analogue only.  However the regulator reserved the right to move to a collection
based on the proportion of analogue viewing, which may have led to higher
payments.  The new terms assume PQR payments over the licence period based on
the proportion of analogue terrestrial only homes, not viewing.



7.        Ofcom had previously stated that it regarded digital terrestrial
revenues as 'qualifying revenues' for the purposes of the review of financial
terms and that this might lead to PQR payments being made with respect to such
revenues following the review.  Ofcom has now confirmed that no PQR payments
will be payable with respect to DTT revenues for any ITV plc licensee for the
duration of the licence period.



8.        Under the previous terms, PQR payments were made with respect to
revenues raised in analogue cable homes.  Under the new terms, PQR payments will
no longer be payable for analogue cable homes.  According to Ofcom's latest
published figures, around 3% of UK homes are analogue cable.



9.        Estimates for 2005 licence payments and associated savings under the
new terms are based on third party forecasts for multi-channel penetration and
for ITV1 advertising revenues.



10.    ITV plc estimates that the average of recent market estimates for the
reduction in ITV plc 2005 payments was around £95 million, with some forecasting
a reduction of only £60 million.



Contacts:



ITV                                  Tel: 020 7620 1620
Media - Brigitte Trafford
Analysts - Georgina Blackburn






Citigate Dewe Rogerson               Tel: 020 7638 9571
Simon Rigby








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