Why Adam Crozier shouldn't buy Five for ITV

Oh, come off it. ITV to buy Five from RTL?

Dan Sabbagh (at Beehive City) and James Ashton (at The Sunday Times) bravely argue that this story has legs. But short of discovering a hidden pot of gold at the bottom of Dawn Airey’s garden, I find it hard to credit.

1) Yes, the mooted savings of £100m sound like a lot (in fact, they’re around one-third of Five’s turnover). But next to ITV’s revenues of £1.9bn, this amount looks less impressive. Under its own steam, ITV plc delivered cost savings of £169m last year. This year, its profits will leap by £100m without any help from Five, thanks to resurgent ad revenues. The immediate crisis in terms of ad revenue declines is over. While this proposal smacks of opportunism, the time for opportunism is past.

2) What would ITV be buying? Around 6% of the nation’s telly-bound eyeballs — a proportion unchanged at Five since 2005 — and 8% of net TV advertising in the UK. Yet why buy more old-fashioned distribution capacity when YouTube – four years old this month – is selling moves to rent and streaming Indian Premier League cricket in the US? Buying Five would be a ridiculously defensive move.

3) In addition, ITV would be buying the rights to Five’s wobbly brand proposition. (Quick: what’s the channel’s slogan? *) Plus that coveted No.5 slot on EPGs (Yet as Lord Grade himself was wont to muse, the value of this is anyone’s guess in a world where web and telly are set on a permanent collision course.)

4) You don’t hire a CEO like Adam Crozier (in exchange for £14m over five years) as the boss of a heavily-indebted company and then allow him to restart the wheezing wurtlitzer of industry consolidation. For that money, Crozier should set his sights on tougher challenges that matter in the long term, like boosting revenues in competitive markets beyond ITV’s quasi-monopoly of commercial TV impacts. For ITV’s own production arm — perennially trying to sell more stuff elsewhere – another vertically integrated distribution channel would represent the softest of options.

5) The Competition Commission would have a whale of time with an ITV-RTL merger. The Commission already considers ITV to be a hapless monopolist. On this basis, how much of the benefit accruing from a deal to buy Five would ITV’s shareholders be allowed to enjoy? Very little indeed, I suspect. Meanwhile, for ITV’s management, the distractions of dealing with regulators and an internal reorganisation would loom large.

I know, I know. Everything has its price. Five remains a problem in search of a solution. And Alex de Groote, an analyst at Panmure Gordon, suggests that ‘consolidation is being talked about”.

And yes, we really should wait to see what the Competition Commission says later this week about the regulatory regime under ITV sells advertising. (Yet having read the Commission’s aggressive interim report, I can’t imagine it smiling benignly upon a profitable extension of ITV’s monopoly. Even if did agree a deal — and that’s one big “if” — the terms of Contract Rights Renewal would presumably be tightened.)

ITV to bid for Five? Either RTL is getting very desperate or the silly season has arrived already.

* It’s ‘Hello, we are Five”.

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