When approving the merger of Carlton Communications plc and Granada plc in 2003, which formed ITV plc, the Competition Commission wanted to prevent ITV from abusing its dominant position in the TV ad market. To appease the Commission, ITV devised contracts rights renewal, or CRR.
CRR was designed to give advertisers the option of renewing or "rolling over" their ad contracts for ITV1 on the same terms as they enjoyed pre-merger. In effect, it prevented ITV1 from ramping up ad rates to exploit its new trading power.
CRR works by allowing advertisers to vary spend on ITV1 in direct proportion to ITV1's share of commercial impacts. As ITV1's share of commercial impacts falls, clients may withdraw a proportion of spend.
CRR does not apply to the sale of advertising on ITV's digital channels, which were not very significant in terms of audience or commercial impacts when CRR was introduced.
Key terms:
Commercial impact: a measure of the viewing of commercial TV. One impact is defined as one member of the target audience viewing one commercial.
Rolling over contracts: a key element of CRR, this practice allows advertisers to keep the same terms and conditions from one year's deal to the next should they wish - while being allowed to cut spend based on ITV's share of commercial impacts.
Station average price: the benchmark price for the delivery of a specific target audience. It is used to determine how much an advertiser will spend on ITV1.
Umbrella deals: the OFT wants umbrella deals to continue under any revised CRR. These are TV ad deals between media buyers and a particular channel, where the agreement specifies the buyer's share of spend across the channel.
Proportion of spend: the proportion of an advertiser's or media buyer's total TV ad spend that it has committed to a particular channel or sales house in return for a given discount.
Exceptional events: ITV1 is allowed to set special ad rates for special events including UK parliamentary elections, international conflicts or major international sporting events (the Olympics, European Athletics Championships, Football World Cup, European Football Championship, Cricket World Cup, Rugby World Cup and Commonwealth Games).
Ratchet formula: the complex formula that underpins CRR. The formula enables agencies to determine how much they should spend with ITV1, based on ITV1's commercial impacts performance. At present, a 1% decline in ITV1's share of commercial impacts entitles advertisers to cut their ad budget with ITV1 by 1%. Under the OFT proposals, a 1% decline in ITV1's share of commercial impacts would only entitle advertisers to cut their ad budget with ITV1 by less than 1%.
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