The merger of Carlton and Granada was approved by the Secretary of State on condition that the companies abide by a set of rules to protect the advertising community from unfair or discriminatory practices in the selling of television airtime.
The two companies must also abide by a set of rules to protect the other ITV companies - Ulster TV, Scottish, Grampian and the Channel Islands broadcaster, Channel.
Protection for the advertising community
When the merger of Carlton and Granada was first proposed, the advertising community - who spend a large proportion of their budgets with ITV - expressed disquiet about the extent of market power the merged company would enjoy.
The Competition Commission considered these views and concluded that there would be a detriment to the public interest in the advertising airtime market unless a suitable remedy was found. As a consequence, Carlton and Granada were only allowed to merge on condition that they agreed to the terms of a new regulatory mechanism called the Contracts Rights Renewal (CRR) remedy.
The merger would enable ITV to combine its strengths. This has the potential to deliver important public benefits: a reinvigorated ITV will secure the future of the UK's leading commercial broadcaster for the benefit of all viewers and allow it to sustain its public service broadcasting obligations for the long-term.
However, the imposition of the CRR remedy by the Competition Commission acknowledges the concerns of the advertising community by safeguarding companies purchasing airtime from the newly-merged Carlton-Granada.
This protection applies to both advertisers - companies who enter into advertising agreements with broadcasters directly - as well as media buyers - intermediaries who buy television airtime on advertisers' behalf.
What is the Contract Rights Renewal remedy and how does it work?
Carlton and Granada jointly attract more viewers than any other commercial channel in the television advertising market. With more than half of total television advertising revenues, the newly-merged ITV could have significant influence over the ability of advertisers and media buyers to negotiate contracts fairly and effectively.
The Contract Rights Renewal remedy addresses that risk by imposing three main conditions:
Condition #1: the advertising community is no worse off
The remedy caps the maximum commitment from advertisers to ITV. It gives advertisers and media buyers the right to renew their current contracts with Carlton and Granada in future with no increase in the share of their spend that they commit to ITV and no reduction in the discounts they receive.
From now until the remedy is no longer necessary, the share of revenue committed by advertisers and media buyers on television advertising to Carlton-Granada need not increase above 2003 levels.
Condition #2: advertising terms are linked to audience share performance
If the merged Carlton-Granada's audiences shrink, advertisers will automatically
be able to reduce the proportion of their spend they give to ITV. This linkage
is a simple, proportionate ratchet, defined within the remedy as a contractual
commitment on Carlton and Granada.
Condition #3: The Adjudicator
The role of the Adjudicator is to ensure that Carlton-Granada respond fairly when the demands of advertisers or buyers change from time to time. The Adjudicator will act as an expert to determine the outcome of disputes between Carlton-Granada and its advertising customers.
The Adjudicator will be a single individual, based at Ofcom's Riverside House
headquarters but will be independent of Ofcom. Ofcom will pay for the costs
of the Adjudicator in the first instance and will be reimbursed by Carlton-Granada.