Ofcom 'backs end to ITV1's CRR'

Ofcom has said that the contract rights renewal mechanism governing airtime sales on ITV1 should be scrapped due to major changes in the TV industry.

The media regulator last week published its CRR submission to the Office of Fair Trading and the Competition Commission following a Freedom of Information Act request.

Last year, the CC indicated that the CRR should remain in place, but relaxed to reflect changes in the TV industry since 2003, when it was implemented to negate market distortion following the merger of Carlton and Granada to become the unified ITV plc.

In its submission, Ofcom added its weight to arguments that the current state of the industry actually justifies a compete abolition of the CRR.

"On the basis of available evidence it is credible to argue that the CRR remedy should be lifted. Evidence suggests that while ITV1 retains unique features which may result in some advertisers or campaigns being reliant on ITV1, there is a group of advertisers/campaigns which can move away from ITV1 without compromising campaign objectives," said Ofcom.

"Furthermore, the feasibility of switching away from ITV1 to other channels should have increased since 2003, and the group of advertisers/campaigns that can switch may be sufficiently large to ensure that any attempt by ITV1 to raise overall prices would be rendered unprofitable."

The watchdog said that scrapping the CRR would be viable because "market forces can provide a credible constraint on ITV's pricing". It also acknowledged that ITV has been reluctant to invest in additional high definition content or launch its long planned ITV1+1 channel, which is widely believed to be a reaction to the CRR.

"Given the distortion to ITV's incentives to invest in high definition and time-shifted variants of ITV1, Ofcom believes the undertakings should be redefined to link them to all linear channels which contain the same content as ITV1, regardless of the platform or method of delivery," said the regulator.

However, it added: "Ofcom believes that there is a need for ongoing monitoring of the advertising sector to understand the impact of amending the CRR remedy, recognising that it may be necessary to commence a market investigation of the advertising sector sometime in the future."

Ofcom's stance has already been well received by ITV, which has long campaigned for an end to the CRR. Former ITV executive chairman Michael Grade previously labelled the mechanism a "straightjacket" to the broadcaster's revival in the tough advertising market last year.

An ITV spokeswoman told The Guardian: "Ofcom's evidence vindicates ITV's case that ITV's position in the market has changed and CRR is no longer an appropriate remedy.

"CRR distorts the market and is highly detrimental to continued investment in original programming and the health of the UK creative industries. It is time this outdated and disproportionate intervention was removed in its entirety. This is a view shared by leading politicians from all parties.

"The formal review of CRR has now dragged on for nearly two-and-a-half years, during which time the arrival of unregulated global competitors such as Google have further intensified competition in the market."

However, Ofcom accepted that there is a "possibility" that a post-CRR ITV could abuse its position in the market, particularly in terms of exploiting "advertisers who are reliant on fast, mass cover by increasing peak-time prices".

The watchdog added: "ITV may be able to change the way that it trades advertising airtime such that price discrimination becomes feasible.

"Concerns remain such that the Competition Commission may wish to consider implementing safeguards (or alternatives to the CRR remedy) that continue to protect advertisers dependent on ITV1 for the quick delivery of mass audiences, but only if it is clear that competitive forces will not provide sufficient protection."

In response to the submission, a CC spokesman said that Ofcom's submission vindicates its arguments for a relaxation of the CRR, with appropriate safeguards.

He explained: "Ofcom's submission clearly sets out that there is also an argument for only relaxing the CRR undertakings and that safeguards may be necessary to protect advertisers dependent on ITV - which is exactly what has underlined our findings on CRR so far, in addition to concerns about the effect on other broadcasters. So the submission recognises that there are arguments on both sides rather than making a definitive call.

"We have proposed relaxing the CRR undertakings to include HD and +1 channels which is very much in line with Ofcom's views. We have taken full consideration of Ofcom's views and will continue to do so, along with those submissions we've had from advertisers, trade bodies and broadcasters - virtually [all] of which have called for CRR to be retained. Both ourselves and the OFT are expert competition bodies and thus far we have taken the same view on CRR."