Too much to swallow 

25 February 2009

ITV proposes merger with Channel 4 and Five to create broadcasting giant

In a way you can kind of see the business logic in this idea, namely one large commercial broadcaster that’s fit to take on BSkyB and the BBC with equal gusto as well as possibly being able to come up with some of those big budget dramas for export that ITV keeps on dreaming of but never actually promising to deliver.

However there are numerous bad omens based on historical precedent surrounding such a possibility, notably that ITV plc has already jettisoned most if not all of the baggage that was associated with the old regional franchises, and Channel 4 plus Five’s resources will presumably be next to be asset stripped if such a “mega-merger” ever saw the light of day.

Based solely on recent events, ITV plus Channel 4 plus Five is very likely to end up being a major and very messy logistical and legislative nightmare, plus if Channel 4 and Five were already starting to drown then combining them with ITV could cause all three to sink into oblivion together. Faster.

If that doesn’t happen, at the very least you will end up with one major commercial broadcaster commissioning one set of programmes based on one set of expectations, and the temptation to save money through drastically cutting back on programme production would be far too great to ignore.

I think that the lessons surrounding programme diversity – or lack of it – caused by one broadcaster replacing several have now been learnt in the aftermath of the ITV regional franchise dismantling process, and this has been evident in the recent desire to somehow preserve some semblance of public service broadcasting diversity.

So from a diversity perspective this proposal is definitely a non-starter, and there are monopoly concerns not just for programme making but also for programme and advertising sales as well; the previous failure of Project Kangaroo does tend to suggest that ITV plc will have its work cut out convincing politicians of any viability of such a major deal.

Ignoring any monopoly and diversity issues, what exactly are the chances of ITV plc realistically joining forces with Channels 4 and Five? Given the parlous state of television advertising, such a major merger isn’t quite as far-fetched as it appears, even allowing for ITV’s weakened state and the presence of that other “bear in the room”, namely RTL.

Whether RTL (Channel Five’s owner) would entertain such a suggestion is another matter, since RTL usually expects to own a dominant TV channel in a particular market. However if Channel Five performs poorly during a protracted recession, RTL could decide to pull out of the UK altogether if no significant further acquisition(s) are possible.

Dawn Airey has now more or less stuck her neck on the line by saying that “Five will get bigger, by hook or by crook”, but if ITV remains too expensive and Channel 4 plays hard to get then RTL may not settle for third best in these circumstances, judging solely from that response.

So Channel Five may be purchasable if RTL loses interest in the UK market, but RTL is definitely interested in buying Channel 4 therefore C4 will also have to be simultaneously unavailable for purchase long enough to put RTL off the scent. This may happen if there’s protracted wrangling over Channel 4’s future caused by numerous factors.

RTL has threatened to report any potential BBC Worldwide-Channel 4 deal to the European Commission for breaching public subsidy rules, although if BBC Worldwide subsidises Channel 4 then it’s just the same as a private company subsidising a public service broadcaster; only the terms of agreement may be up for scrutiny in this case.

Alternatively RTL may tactically decide to pull out of the UK market prematurely with the hope of reentering at a later date in order to pick up the pieces of any failed merger, but by doing so it also runs the risk of being locked out of the UK commercial television market permanently.

Plus if Channel Five was to come up for sale, ITV would need to come up with the purchase price – perhaps facing a bidding war with other broadcasters in the process – as well as Channel 4 presumably being unwilling to contribute to such a deal on its own accord under its current management.

So all things considered, the chances of such a “mega-merger” actually taking place are actually very slim to none whatsoever, which is just as well given the potential for disaster that awaits if such a deal was ever to see the light of day.