Anticipated acquisition by ITV plc of 25% of GMTV Limited.

Affected market: Supply of airtime for TV advertising and programme

No. ME/1886/04

Please note that the full text of the decision can be downloaded by using the link on the right . What follows are extracts regarding the parties, the transaction, jurisdiction, assessment and decision.

Please note square brackets indicate a business secret excised at the request of the parties.

The OFT's Decision on reference under section 33 given on 17 September 2004

PARTIES

ITV plc (ITV) was formed in February 2004 as a result of the merger between Granada plc (Granada) and Carlton Communications plc (Carlton), and currently owns eleven of the fifteen regional Channel 3 licences. ITV's principal activities include: the sale of television advertising and sponsorship; UK programme production and distribution; international programme production and distribution; and screen advertising. In addition to its 50 per cent interest in the target company, GMTV, ITV has interests in the following entities: 100 per cent of ITV2; 16.89 per cent of SMG plc (SMG); 40 per cent of ITN; 100 per cent of ITV News; 50.5 per cent of Granada Sky Broadcasting and 33.33 per cent of MUTV. In the 15 months ended 31 December 2003, ITV generated UK turnover of approximately £3,000 million.

GMTV Limited holds a national Channel 3 licence (GMTV) and owns the satellite and cable channel GMTV2. Both channels broadcast daily from 06:00 to 09:25 on weekdays, GMTV offers an hour of news programming between 06.00 and 07.00 followed by magazine-style programming, incorporating news, weather, and lifestyle interests. At weekends, most of GMTV's programming is aimed at children. In the year to 31 December 2003, GMTV had UK turnover of £76m.

TRANSACTION

ITV currently has a 50 per cent interest in GMTV, with SMG and The Walt Disney Company Limited (Disney) holding 25 per cent each. On 10 May 2004, ITV announced that it had agreed to acquire SMG's shareholding. This triggers an option for Disney to bid for all or some of SMG's holdings, or to sell its own holdings. This process will not be resolved within the timetable of this inquiry. The structure of the final transaction and ITV's ultimate level of shareholding is therefore unknown, although ITV had asked the OFT to assume that it will increase its shareholding to either 66.7 per cent or 75 per cent on the grounds that the difference to the assessment between these levels is immaterial. As any increase in ITV's level of shareholding beyond 50 per cent (up to 100 per cent) amounts to the acquisition of a controlling interest in GMTV the OFT has in this case examined the proposed transaction, on the basis that ITV will exercise control over GMTV, enabling it, for example, to merge the ITV and GMTV
 
 advertising sales houses should it wish do so. The administrative deadline expires  on 17 September 2004.

JURISDICTION

As a result of this transaction, ITV and GMTV will cease to be distinct. The UK turnover of GMTV exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

ASSESSMENT

The parties overlap in programme acquisition and supply, and in the supply of TV advertising, in particular for housewives, housewives with children and children. The former raises no issues due to the small scale of GMTV's acquisition and production.

As to the supply of TV advertising, the overall evidence as to the degree to which GMTV and ITV offer customers competing or complementary advertising time is mixed. Two concerns were raised. The first alleged that the transaction would increase ITV's ability and incentive to conditionally sell. As no supporting evidence was produced that ITV currently breaches Ofcom regulations or that the merger would facilitate or incentivise such conduct, this concern was dismissed.

The second concern related to the merged firm's (increased) ability to price discriminate, as established by the CC in relation to the sale of ITV airtime, against those customers with a less elastic demand for GMTV's three demographics, in particular children.

On the face of it, GMTV has a small (3-4 per cent) share of children's impacts, suggesting it would be easy to substitute other channels in the event of a price increase. Indeed, non-terrestrial TV channels appear to have a particularly high penetration for children. Even adjusting for impacts derived from slots where mostly children are watching and for child orientated channels, using internal documents supplied by a concerned third party, the difference was very small. This position is further supported by audited figures and third party evidence on expenditure by relevant advertisers.

Price differences between channels may affect the efficiency of substitution if reaching the same coverage is significantly more expensive. ITV's coverage data suggests that is not the case. Although third party data, also produced for this enquiry, suggest GMTV is a cheaper option than others, it is so only marginally. Balancing these conflicting data against the weight of other evidence suggests that other channels are substitutes that effectively constrain ITV post-merger. This, together with GMTV's modest position in the demographics in question on all bases considered, renders it unrealistic to suggest that the merger may lessen competition substantially in respect of TV advertising.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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