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Tuesday 13 December, 2005

OFCOM

TV advertising and CRR remedy

Office of Communications
13 December 2005

             Television advertising sales market and the CRR remedy

13 December 2005

Ofcom today set out its approach to the UK television advertising sales market
and the Contract Rights Renewal (CRR) remedy put in place as a condition of the
Carlton-Granada merger to protect the interests of the advertising community
purchasing airtime from ITV plc.

Television advertising sales market

In its conclusions granting regulatory approval for the Carlton-Granada merger,
the Competition Commission suggested that a wider review of the UK television
advertising sales market should be considered. In its Annual Plan for 2005/6,
Ofcom proposed conducting this review.

Ofcom has subsequently undertaken a preliminary analysis of the market. In its
view, the case supporting the need for a full review of the entire market has
not been made. The reasons for this include:

  • Ofcom has received no complaints regarding the operation of the television
    advertising sales market;
  • there is no strong evidence of consumer detriment arising from the
    workings of the market as currently constituted;
  • there have been no calls from either the advertising or the broadcasting
    industries for such a review; and
  • the CRR remedy (of which more below) has a significant effect on the
    market; therefore, in Ofcom's opinion, there would be limited value in a
    wider review prior to any examination of the case for a review of the CRR
    remedy.

Ofcom's regulatory principles state that it will operate under a bias against
intervention and that it will always seek the least intrusive regulatory
mechanisms. Given these and the absence of demands for - or evidence to support
- a review of the television advertising sales market at this time, Ofcom has
removed this proposal from its work plan.

Contract Rights Renewal (CRR) remedy

The CRR remedy was established in October 2003 in acknowledgement of the
potential for the newly-merged Carlton and Granada to exercise significant
influence over the ability of advertisers and media buyers to negotiate
contracts fairly and effectively. ITV plc has given formal undertakings to
comply with the CRR remedy as a condition of regulatory approval for the merger.

The CRR remedy imposes conditions upon ITV plc which are intended to ensure that
advertisers and media buyers are no worse off after the merger than before. It
includes an automatic 'ratchet' - a linkage which reduces the amount advertisers
will have to commit if ITV's audience shrinks. The remedy is overseen by an
independent Adjudicator to ensure that fair competition prevails.

The Office of Fair Trading (OFT) is responsible for the CRR remedy, supported by
Ofcom. The decision as to whether the CRR remedy should be reviewed - and if so,
when - would rest with the OFT. As the sector regulator, Ofcom will continue in
its role of monitoring the CRR remedy and assessing its impact on the wider
industry.

ITV1 still has a significant (greater than 40%) share of the television
advertising sales market and may continue to do so in future. Therefore, the
assumption based on current understanding of the television advertising market
is that any request for review and subsequent modification of the CRR remedy
would have to demonstrate, with substantial evidence, that the wider market as a
whole would not be adversely affected by any such modification.

The Office of the Adjudicator (CRR)

The Office of the Adjudicator seeks to ensure that ITV plc responds fairly when
the demands of advertisers or buyers change from time to time. It also
determines the outcome of disputes between the broadcaster and its advertising
customers. In examining a dispute the Office of the Adjudicator has access to
all of ITV plc's contracts and trading information. Its decisions are final and
binding on ITV plc.

The Adjudicator is independent of Ofcom; however Ofcom is responsible for
ensuring the Office of the Adjudicator is able to function according to the
terms of the merger undertakings.

The current Adjudicator David Connolly has decided to step down next year, in
line with his original commitment to spend three deal seasons in the role. He
will continue in post until the end of March 2006. Under the terms of the
Adjudicator's contract, confidentiality and employment restrictions will remain
in place until 2007. The selection process for David Connolly's replacement will
begin in January.

Ofcom Chief Executive Stephen Carter said: 'The airtime sales market is complex,
with multiple players. Our priority is to continue to monitor the CRR remedy and
to work with the OFT in the event of any subsequent review.'

He added: 'I would like to thank David for his work over the last three years.
The role of the Adjudicator is - and will remain - an important part of the
remedy.'

NOTES FOR EDITORS AND CSEs

Ofcom is the independent regulator and competition authority for the UK
communications industries, with responsibilities across television, radio,
telecommunications and wireless communications services.

For further details please visit www.ofcom.org.uk

CONTACT

Ofcom Media Office
mediaoffice@ofcom.org.uk
(+44) (0)20 7981 3033



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