ITV merger means fast talking about ad rates

Carlton and Granada face another month of hard negotiations before they complete the £4.5bn merger cleared by the government yesterday.

The ITV broadcasters were given a one month deadline by trade and industry secretary Patricia Hewitt to alter their advertising sales system after the Competition Commission recommended changes to the way they sell airtime slots.

Both companies heaved a sigh of relief yesterday after the commission said a merger would be anti-competitive for advertisers but ruled out ordering Carlton and Granada to sell their advertising sales houses.

Granada chairman Charles Allen, who will be chief executive of the newly formed ITV plc, and his Carlton counterpart, Michael Green, who is to take the chairman's role, had doubts about the viability of merging without both sales houses - a crucial part of the £55m in savings earmarked under the deal.

Instead, the companies will be asked to roll over the terms of their existing deals with advertisers for a number of years and must implement that by November 7, when the latest round of negotiations with clients will be under way.

The proposal, known as contract rights renewal, is designed to prevent the merged entity - which will control 51% of the TV advertising market - from ramping up the cost of airing commercials. Advertisers will also receive a discount on their deals if ITV's audience share drops.

But the regulator charged with overseeing the changes warned that the process would be fraught with difficulty.

The Office of Fair Trading said in a submission to the Competition Commission that Carlton, Granada and the advertising community might struggle to implement the changes in time for the annual round of advertising negotiations, beginning on November 1.

"There is no guarantee that these undertakings can be negotiated quickly enough for the parties and their customers to absorb their implications by November 1," the OFT said.

The consumer watchdog said new advertisers might struggle to gain access to ITV slots because of the advantageous rates, or negotiate the transfer of their media buying accounts to other agencies which may have more clout with ITV.

The Competition Commission admitted in its report that Sarah Brown, one of the five board members working on the investigation, believed divestment of the sales houses was the best way to protect advertisers' interests. She also warned that the roll-over solution was too complex.

The Independent Television Commission and Ofcom, the new media industry regulator, will also oversee the implementation of contract rights renewal.

Both regulators preferred the roll-over solution to divestment, according to the Competition Commission's report.

Once the system is agreed, it will be policed by an independent adjudicator to be selected by the ITC and funded by Carlton and Granada. But Mr Allen said that introducing the roll-over system would be a formality.

"It's quite straightforward. All we are doing is two things: you can get no worse deal than your current contract and if we don't deliver the ratings, your price goes down in line with that, so the concept is very simple."