(CRR for Dummies) - ITV's latest drama, a bang or a whimper?

On Tuesday, I sat surrounded by a dozen or so industry peers, discussing a topic that sparked some very interesting debate and observations. And it’s a subject matter that not many of us in the media and marketing industry would have even heard of, understood how it works or known its effect on the market.

The main UK TV companies, advertisers, and their media buying agencies have an interesting time ahead, due to something that happened back in 2003 after the two major ITV sales houses (in laymen’s terms, the people who sold ad space in the breaks on ITV) Carlton and Granada merged. That something is called Contract Rights Renewal, or CRR.

In 2003 ITV1 had over a 60% share of all commercial viewing (there weren’t many stations!), and therefore after the saleshouse merger there were rightfully concerns over them having a monopoly over the TV marketplace and calls for transparency over how they set their pricing. But things have changed, and ITV1 is not the behemoth it was back then, there is far more viewing choice and as a result ITV1 is now 20% of UK TV Viewing, 12.5% if you add in YouTube.

Pretty dull stuff, eh? Well, not really, because now there are different consequences to what was anticipated over 20 years ago – CRR still existing today could threaten us with the prospect of far less great dramatic content from British creators such as Happy Valley, Broadchurch, The Suspect, or more recently The Walk-In or Passenger. Well, it could, and it’s all down to CRR. But what the heck is CRR?

TV in 2003 was predominantly traded in “share deals” between the media agencies and the sales companies (and a lot of it still is today), where a certain discount off their pricing would be given in exchange for a guarantee of a certain percentage of the agency’s TV spend.

After the Carlton-Granada merger it was agreed that something called Contract Rights Renewal (CRR) would be put in place. In a nutshell, it meant that any such share deals set with Carlton and Granada (and in the future with ITV1 as a whole) could be continued, with one added caveat: If ITV’s proportion of UK TV viewing figures (total ratings) decreased, the agency’s promised share commitment can also decrease by the same proportion, and the agency could spend that money elsewhere. Ofcom would also heavily monitor ITV’s pricing mechanics to make sure that they had not artificially inflated their station prices to compensate.

The viewing-related alteration meant that if ITV’s share of viewing fell, their revenues would therefore fall as well. As a result of any drop in revenue, the price of airtime falls, too, as the price is driven by supply (viewers) and demand (revenue). So, a double whammy for ITV.

Fair enough, a dominant company like ITV, taking hundreds of millions in ad revenue can afford to pump loads of it into great new programming to keep those viewers coming. Maybe in 2003, but not two decades down the line…

In 2003, the industry had little idea of what was to come. As pointed out in the discussion session I attended: at that time Amazon was an online bookstore and Netflix was a place you rented DVDs from. Video on Demand and YouTube didn’t even exist. Nowadays there are far more places where people can watch content, and advertisers rightly follow eyeballs and therefore the money goes there too.

ITV, feel this is unfair, as this fragmentation could not have easily been predicted. Channel 4 and Sky even feel that CRR is unfair, because those monies taken away from ITV get invested in other media, so the TV industry loses out. Over 20+ years that’s a lot of money, none of which is going back into UK TV industry, be it sales houses or production companies.

One thing ITV has done because of CRR, is to milk its ‘banker’ shows almost dry. Coronation Street is now on 6 times a week. They have added extra episodes to Emmerdale in the past and added hour long episodes, too. Shows like Heartbeat, Downton and Doc Martin were recommissioned time and time again as they were easy ratings winners. And they love thinking up new shiny-floor Saturday night programs liked Masked Singer and Talent shows. I’m a Celebrity is becoming dull and formulaic, and one latest addition to the ITV schedule was an unimaginative and unsuccessful effort to try and pump life into the rotting corpse of Big Brother.

This proves that ITV are being risk averse to try to maintain viewing share, an almost impossible task when up against such stiff competition. ITV argue that if CRR was removed, they would be able to increase investment into more innovative new formats and companies, rather than sticking with the stalwarts. Sounds like ITV are being nice, but let’s face it, ITV are not philanthropists and there is no guarantee they would stick to their word and pump all that money into great new UK TV content made by independent companies.

ITV are portraying themselves as the victims, but they’re making money in other ways. Since CRR was put in place, ITV have added non-spot revenues into their declared revenue figures. By non-spot I mean things like sponsorship, product placement and Video-on-Demand. These revenue figures are part of the TV pricing calculation and have therefore been artificially inflating their station prices for years.

Recently ITV have been showcasing new dramas on ITVX ages ahead of putting them on ITV1. Why? Because they know that’s where the future lies. Plus, it’s a successful, growing entity, and one they can set their own pricing for without people like Ofcom looking over their shoulders. In the meantime, they are claiming to combat CRR by maintaining their viewing figures. That doesn’t make sense.

ITV aren’t the complete bad guys in this situation. They are heavily monitored by Ofcom and CRR was put in place to make them behave themselves, but things have changed. Netflix, Disney, Amazon, Channel 4, Sky etc can all set their own pricing for their On Demand content, with no regulation or monitoring. If the advertisers are happy to pay it, they pay it. Linear TV (ITV, C4, Sky etc) is still very cheap indeed in comparison, and they still hit high viewing figures, but all bar ITV1 are unmonitored.

So, right now, CRR is under the spotlight, and we are being asked if we think it is worthwhile to keep in place or not. ITV understandably want shot of it, as do their competitors. The impression from most advertisers seems to be they don’t care if it’s there or not, so long we still have good content to place our ads in. And agency folk are probably happy to lose CRR so long as they can still ensure they are getting the best possible pricing for their clients.

CRR has become unfit for purpose due to so many unforeseen circumstances. The best thing to do would be to get rid of it, however we need to ensure that we don’t have another set of such circumstances in the future. There are three things I think it’s time to do:

1.?????? Scrap CRR.

2.?????? Ofcom to police ITV to ensure they set their station pricing fairly in a post CRR world.

3.?????? Ofcom to police all Video on Demand companies/sales points to ensure fair pricing.

And that’s it. Simple. What could possibly go wrong? I guess we will know in another 20 years’ time.

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Please note that all opinions stated in this piece are my own and not that of my employer or any industry body of which I am a member.