On page 108 of last week's preliminary response on ITV's contract rights renewal obligations from the Office of Fair Trading, there is a mind-numbingly complicated formula that explains the "CRR Ratchet".
It looks complex enough to make Einstein's hair stand on end, let alone ITV executive chairman Michael Grade or media agency bosses.
But it is crucial to the future of TV trading and advertising effectiveness. The OFT has taken a year to come up with a series of alternative proposals for dealing with the mechanism, with a bias towards easing CRR that has, understandably, gone down well with ITV.
Grade believes CRR places a dead hand on the TV market-place, but the majority of advertisers enjoy its protection. However, as well as protecting clients, media regulator Ofcom is duty bound to create favourable conditions for broadcasters to flourish, and ITV argues CRR threatens its very existence. For their part, advertisers and ITV's competitors say the abolition of CRR is an acronym for "ITV increasing its prices".
A key point is the rolling over of contracts dating back to the setting up of CRR when Carlton and Granada merged in 2003. This protects advertisers, but is increasingly unrepres-entative of a TV market that has altered exponentially in the intervening six years.
The original 2003 Competition Commission review iden-tified areas that needed addressing, such as station average price, umbrella deals and group deals. The OFT seeks to enshrine group deals in its proposals, which won't go down well with smaller clients and agencies less able to compete in the rarefied atmosphere of big agency deals. But group deals and station average price don't represent the same protection for advertisers as the rolling over of contracts.
One severe weakness of the OFT inquiry is that it only covers ITV1, not its digital channels. However, the OFT and Competition Commission can't extend the remit beyond what was originally put before them, so the parameters of the inquiry become more of an anachronism as time goes on.
Informed sources suggest ITV will benefit to the tune of at least £30-40m if CRR is dropped. But do advertisers and media buyers trust ITV to behave honourably if it is removed? They recognise the need for a strong ITV, but not one that will come back and bite them. The lessons of history suggest those outcomes are mutually incompatible.
