Carlton and Granada are planning a merger that would finally unify control of UK TV station ITV. A single ITV would be much better equipped to withstand the threat from News Corp’s BSkyB and Bertelsmann’s Five, and many of the obstacles to a merger have disappeared. But while completion is the likeliest outcome, there is still a tortuous journey ahead.
UK TV companies Carlton and Granada are again in advanced merger talks.
UK TV groups Carlton and Granada – which effectively control the country’s most popular commercial TV network, ITV – admitted on Friday that they are in merger talks. The new company would be 68% owned by Granada shareholders and 32% by Carlton shareholders.
While Carlton/Granada merger talks have failed before, this time could be different. The UK’s new communications bill will remove rules that prevent ITV from having a single owner, although the merger will technically be prohibited until the bill becomes law next year.
Another obstacle that has disappeared is ITV Digital. The digital pay-TV operator, which lost its parents over GBP800 million, has now been liquidated – reducing the financial burden on Granada and Carlton and allowing management to focus on other priorities.
But why should they merge now? Simply because ITV is in trouble. Not only is the station in the middle of an advertising recession – it’s also losing viewers to the BBC, Five and pay-TV giant British Sky Broadcasting. The departing head of Five, Dawn Airey, also recently moved to BSkyB rather than ITV – even though the ITV head of programming job is vacant.
ITV desperately needs to sort out its over-complicated organizational structure, develop a coherent identity and strategy, and exploit economies of scale to stay competitive. Complexity has long been a flaw dogging ITV; recent years’ disasters make consolidation more urgent.
The biggest remaining obstacle is in advertising: Carlton and Granada control 55% of the UK TV advertising market, and regulators are highly unlikely to allow this to continue. The companies hope to run their ad departments at arm’s length, but may well be forced to spin one off – and to prove that this arrangement is truly competitive.
Overall, the ITV merger is more likely to succeed this time round and needs to for the future health of ITV. However, with the whole process taking up to a year, there is still plenty of time for problems – in particular, future disagreements over financial terms or individual personalities.
Related research: Datamonitor, The future of UK DTT (BFTC0755)
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