The 1991 ITV franchise auctions were a mechanism created by the British government to award licences to broadcast on Channel 3, the commercial television network commonly known as ITV. They were a significant and highly controversial episode in the transition from a broadcasting duopoly of ITV and the BBC to a competitive, deregulated market.
The award and periodic review of regional and national ITV licences had originally been based on the regulator's assessment of an applicant's merit. By the late 1980s, however, the Thatcher government was dissatisfied with the ITV companies, regarding them as inefficient monopolists in the commercial TV market. As part of a wider deregulation effort in the Broadcasting Act 1990, the government decided to award the ITV franchises through a hybrid blind auction with safeguards to protect quality and financial sustainability. The intention was to bring new, leaner companies into ITV and reduce the monopoly profits of the existing licence-holders. The mechanism was widely criticised for taking money out of programming and encouraging speculative bidding.
The auctions produced almost a year of uncertainty and conjecture. There were high-profile outside bids from Richard Branson, Phil Redmond, the Walt Disney Company and others. Forty applicants bid for the sixteen franchises, which were awarded in October 1991. Four incumbent companies lost their licences, including Thames Television, the largest ITV franchiser, and TV-am, the world's most profitable TV station at the time. The results led to commentary about the relationship between politics and the TV industry and the likelihood of a decline in programme standards. After the licences came into effect in 1993, some ITV companies struggled financially and the network as a whole came under increased competition, contributing to a wave of mergers and the establishment of ITV plc in 2004.
Background
Commercial television launched in the United Kingdom as a result of the Television Act 1954, and Independent Television began broadcasting in London in 1955. By the early 1970s, there were fifteen regional commercial broadcasting licences across the UK, each held by a different company (one license previously operated by WWN collapsed through financial failure and was merged to create the Wales & West license). Each region was franchised to a single company, except London, where there were two: one from Monday mornings to Friday evenings, the weekday franchise; and another from Friday evenings to Sunday nights, the weekend franchise. The ITV companies jointly controlled ITN, which produced national and international news for the network.
The last franchise round, in 1980, had operated under virtually the same rules as all previous ones: bidders submitted a programming proposal to the Independent Broadcasting Authority, and the regulatory body chose the submission it regarded as the most promising. In that round, Westward Television and Southern Television had lost their franchises, to TSW and TVS respectively. ATV, the franchisee for the English midlands, was compelled by the regulator to reorganise itself into Central Independent Television, becoming essentially a new company with a stronger regional focus. In addition, the contract for a national breakfast service on ITV was awarded to TV-am, which began broadcasting in 1983.
The launch of Channel 4 in 1982 also involved the ITV companies. Although the new channel was administratively independent of the network, the ITV companies were responsible for selling its advertising space, thus preserving their monopoly over terrestrial TV ad revenue.
Broadcasting Act 1990
In the 1980s, it became clear that British television's duopoly of the BBC and ITV was not going to last. Though ITV's programming remained highly popular and critically acclaimed, the growth of independent production companies fostered by Channel 4 and the rise of cable and satellite television presented serious threats to ITV's near-monopoly over commercial production and advertising. Relatively high trade union influence made ITV a bête noire of Prime Minister Margaret Thatcher and her free-market allies, including the advertising company Saatchi & Saatchi. In 1987, at a seminar on broadcasting at Downing Street, Thatcher described ITV as "the last bastion of restrictive practices". Unsuccessful forays into multi-channel broadcasting with Super Channel and British Satellite Broadcasting in the late 1980s and early 1990s increased the financial pressure on the ITV companies.
In 1985, the Thatcher government formed the Peacock Committee to look into deregulating British broadcasting. Though many of the committee's recommendations were not adopted, its work formed the basis for a White Paper, and in turn a Broadcasting Bill. Among other things, this proposed the launch of a fifth terrestrial TV channel, new quotas for independent production on both the BBC and ITV, and the replacement of the Independent Broadcasting Authority with a lighter-touch regulator, the Independent Television Commission. The government also proposed to allow Channel 4 to sell its own advertising for the first time.
Under the draft law, network scheduling plans would need to be submitted to the Office of Fair Trading, to foster competition and eliminate the major ITV companies' cartel-like control of prime time. In addition, the ITV companies themselves, as "Channel 3", would replace the IBA as the legal broadcaster – a sign the balance of power was shifting away from the regulator. Unlike those of the IBA, the ITC's decisions would be subject to judicial review.
The most controversial feature of the bill was the proposed reform of how ITV franchises would be awarded. Douglas Hurd described the procedure used in 1980 as "a system of despotism tempered by assassination". Thatcher wanted to bring new companies with more competitive instincts into ITV to drive down costs across the industry. The government announced that the next franchise round would be decided by competitive tender – in effect, a blind auction. Franchises would be awarded to the company offering the highest annual stipend to the Treasury, with no other factors considered. The proposal was deeply unpopular. The Campaign for Quality Television, which included public figures like Judi Dench, Esther Rantzen and John Cleese, was formed to lobby against the government's plan and demanded that franchises be awarded to the company willing to spend the most on programming. The producer and director Simon Albury told the Financial Times: "Money to the Treasury is the government’s over-riding concern; and viewers will be offered programmes of lower quality and narrower range."
Though on its publication, David Mellor, the minister responsible, described the bill as "a great leap forward in the direction of wider choice in broadcasting", the auction mechanism was watered down on its way through parliament. A quality threshold was introduced, as were tests relating to financial sustainability. After the bill was approved by MPs in 1990, The Stage reported that these changes had reduced interest in the franchises among major international players like NBC and Canal+, and that the likelihood of a major shake-up in ITV was now diminished, especially with the onset of the early 1990s recession.
The bill did not initially include a franchise for the national teletext service for ITV and Channel 4. Instead, it proposed that each of the 'spare lines' occupied by the current teletext provider ORACLE would be auctioned individually to the highest bidders who would not necessarily have to use the lines to provide a teletext service. After a campaign led by ORACLE, the bill was amended to include a franchise for a public teletext service.
Rules
The Broadcasting Act 1990 set out the rules which would govern the award of Channel 3 licences. Each licence would begin on 1 January 1993 and would last for ten years with the possibility of renewal for a further decade. The Independent Television Commission would be responsible for awarding the franchises in accordance with the new law. Rather than a simple blind auction, there was a two-stage process. For the first stage, without knowing the exact cash bid each applicant had made, the ITC would analyse their programme offerings and financial plans.
The quality threshold would only be met if an applicant had: Sufficient news and current affairs programming dealing with national and international matters; Sufficient high-quality programming in non-news areas; Sufficient regional programming, which should be made predominantly within the region; Sufficient children's and religious programming; Programming with a wide range of appeal; Sufficient programming made in Europe; At least a quarter of its programming made by independent production companies.
These specific quality criteria did not apply to the national breakfast franchise, though the Commission was expected to consider quality in its deliberations there also. The financial threshold would only be met if the ITC believed the applicant would be able to maintain their proposed level of service over the full ten-year licence period.
Only after these two thresholds had been met would the Commission proceed to the second stage and open the applicants' sealed envelopes containing their cash bids. The highest qualifying bid would be the winner – except in "exceptional circumstances", defined by the Act as those where the "quality of the service proposed by such an applicant is exceptionally high" relative to the highest qualified bidder. The exceptional circumstances clause was complicated by the high likelihood of judicial review in such cases, so much so that it was unclear if the ITC could use the power without having its decision overturned by the courts. In the event of a tie, a further cash bid would be submitted by the relevant applicants.
After the new licences came into force in 1993, restrictions on mergers within Channel 3 would be gradually lifted. At first, there would be a one-year moratorium on takeovers. From 1994, large companies within the network would be able to buy out smaller ones subject to the approval of the ITC, and European owners would be able to enter the system. The Broadcasting Act permitted the government to further relax these restrictions in the future.
Timeline 1 November 1990: the Broadcasting Act 1990 is signed into law. 15 February 1991: the ITC invites bids for the sixteen Channel 3 licences. 15 May 1991: deadline for the submission of sealed Channel 3 bids to the ITC. 16 October 1991: announcement of the winners of the Channel 3 licences. 8 November 1991: the ITC invites bids for the public teletext service. 20 January 1992: deadline for the submission of sealed teletext bids to the ITC. 30 April 1992: announcement of the winner of the teletext licence. 1 January 1993: new licences come into effect. 1 January 1994: limited mergers of Channel 3 companies permitted.
Bids
As the cash values were secret and challengers were not obliged to make their intentions public before the May deadline for submissions, the auction process was subject to intense speculation in the media. Incumbents who lost faced the possibility of closure and the certainty of significant job losses. Companies who bid too high and won were likely to be unprofitable in an increasingly competitive advertising market. Press commentary on the bidding process had the potential to influence the value of incumbents or potential challengers, many of whom were publicly traded companies. Some incumbents could be unopposed, but had no way of knowing for sure. The bidding process created enormous uncertainty within the existing ITV companies, who did not know if they would be on air after 1992 and how much money they would have for programmes if they were.