Carlton Communications and United News & Media’s decision to merge in a deal worth £7.8 billion, is arguably one of the most profound and audacious moves in UK media history.
If the deal is passed through the regulatory system relatively intact, it well spell a fundamental shift in the balance of power in the UK’s commercial TV industry. Carlton/United would control nearly two thirds of ITV, leaving Granada Group and a collection of minor interests including Scottish Media Group, Ulster TV, Border TV and Channel TV controlling the remaining third. The new company will also command around 36% of all ITV revenue, worth around £1.2 billion a year.
Consolidation amongst ITV companies has been an enduring trend of the Nineties but the Carlton/United merger has now accelerated the process rather more quickly than some interested parties including Granada and the regulatory authorities expected. Last Friday’s move is regarded as the latest step towards a consolidated ITV, which will eventually include Granada. However if they are given the go-ahead to merge, it will be Carlton/United that would call the shots in any future mergers.
Indeed, the very crux of the deal is ITV and in the longer term digital TV in the form of ONdigital, which is currently jointly owned by Granada and Carlton.
By pooling their interests, Carlton/United will command 60% of all ITV regions through their ownership of HTV, Anglia, Westcountry, Meridian, Carlton and Central.
As Green said last week, “bringing our businesses together will strengthen ITV, contribute to the success of digital terrestrial television and boost Britain’s television production base”.
ITV, and terrestrial TV in general is facing a serious threat to its long-established and comfortable reign as the only mass market provider of commercial TV. Although BSkyB and the cable companies’ multichannel TV offering has been a looming threat for the past 10 years, the advent of digital TV has speeded up the erosion of ITV’s audience.
As the first tranche of digital Barb figures demonstrated, terrestrial channels are being hit hard in digital homes, with only around 20% of viewers tuning in to ITV at times.
Consequently, an ONdigital backed by all three ITV companies will give extra programming muscle to potential new digital products – new ITV digital only channels are already in advanced stages. And, possibly more importantly, ONdigital’s financial firepower will be greatly increased putting it in a far more realistic position to bid for the all important Premier League rights.
The bigger picture
Outside the TV interests, the merger will combine a mix of media interests embracing everything from cinema to newspapers via business-to-business services and new media. The common currency, however, is undoubtedly digital.
Indeed, as well as focusing heavily on digital TV (shorthand for advertising, internet, e-commerce and subscription programming) both Clive Hollick, UN&M chief executive and Michael Green Carlton’s chairman, were keen to extol the merits of their new media output (which means information provision, more e-commerce, newspapers and pretty much everything else) in their joint announcement.
Further focus was given to a dedicated media conglomerate, with the group’s decision to divest a raft of non-core assets which the group would accumulate, including leading UK cinema sales business Technicolor (formerly Carlton Screen Advertising), film distributors United Artist Pictures and VCG stock photography library, will add extra focus.
“The choice is straightforward,” said a bullish Hollick at last Friday’s announcement. “We can wait for the future to arrive or start to shape it today. We plan to invest aggressively in our online business to exploit the huge potential of the new media revolution. The time to act is now.”
New media revolution
Carlton Online, set up almost two years ago, has received industry-wide recognition for its first three sites, Jamba, Popcorn and SimplyFood, and with significant fresh investment going into Carlton.com, a generic portal, the company has already positioned itself as a key player in the online space.
UN&M interests include Express New Media, Anglia Multimedia and LineOne, the 50/50 joint venture ISP with BT. Miller Freeman has invested heavily in Music Week offshoot dotmusic and travel website utravel.co.uk. UN&M’s Miller Freeman also owns CMP Media in all markets but the UK and France. It plans to float new media arm CMPnet in the new year.
CMP also points to the company’s business-to-business operation. A series of acquisitions – like CMP, which it acquired earlier this year – have added exhibitions and online businesses to the company’s existing magazine brands. Miller Freeman now houses 440 titles and 650 exhibitions, many in growth markets such as IT. In financial terms, Miller Freeman contributes almost half of UN&M’s profits.
UN&M’s Express Newspapers is in a less healthy state with sales continuing to fall steadily. However, with investment they could prove to be a crucial cross-promotional tool for the rest of the merged company’s interests.
Symmetries aside, the future of the deal remains in the hands of the regulators. Given the scale of the merger, various regulatory restrictions would need to be relaxed or flouted. Collectively, Carlton and UN&M own six major ITV franchises which amount to very near the permitted 15% threshold for share of viewing. More importantly, the six regions command around 32% of available TV revenues, 7% higher than allowed by competition rules.
The Office of Fair Trading – which will receive the merger proposals this week – is bound to be bombarded by claims from agencies and advertisers, who see the merger as a license to increase TV airtime costs. As one senior Carlton executive told Media Week: “I imagine agencies will fight it tooth and nail, along with the clients.” Indeed, various senior agency executives have expressed concern at potential monopolistic practices.
Nigel Walmsley, chairman of the new group’s TV interests remains confident that the deal will still go through. “We are confident the plans we have announced today do not breach any rules,” he said.
If the deal is allowed, there still remains the question of what to do with the companies’ various executives – there was no mention of Steven Cain, recently installed as chief executive of Carlton, and some see the proposed power-sharing arrangement for Green and Hollick as a recipe for disaster.
And then there is the possibility of a hostile bid. Granada is naturally being mooted as a potential meddler. The company is already reported to be assembling a bid for one of the two companies. n