The new ITV wakes up to reality

Charles Allen admits: "It's better late than never." Last week, while the BBC was busy tearing itself apart, Mr Allen and the rest of the new board of ITV plc were quietly preparing for the long-awaited merger of Granada and Carlton Communi- cations, which takes effect tomorrow.

There have been a few casualties along the way. The two companies poured £1bn into their joint venture ONdigital, latterly ITV Digital, before it folded. And Michael Green, Mr Allen's counterpart as chairman at Carlton, never made it to the chairmanship of ITV after being ousted in a shareholder coup in October.

But there are reasons for Mr Allen to be cheerful, and not just the chaos over at the BBC. Jordan, the sex symbol, and John Lydon, the former Sex Pistol, are giving the broadcaster plenty of exposure with the new series of I'm a Celebrity ... Get Me Out of Here. Media buying agency Manning Gottlieb OMD has estimated that in some areas more than half of all women aged 16 to 34 years old watched the reality TV gameshow on Monday, not to mention the legions of devoted male viewers. Media buying agencies estimate that the total advertising spend on ITV is up 2 or 3 per cent in January compared to last year, largely on the back of the show's success.

But Mr Allen will need more than Jordan to give ITV a lift. The chief executive has to please viewers and advertisers to make ITV a commercial success and win over shareholders. If ITV can keep hold of its audience, advertisers will be happy and revenues will increase. Long-suffering Carlton and Granada investors will be hoping that Mr Allen gets the mix right.

The merger is long overdue, he concedes. "When I joined Granada, one of the first things I said was that the ITV licence holders needed to move closer together. There was no point having 15 separate boards. We had over a decade pouring money into all these infrastructures when it could have gone into programming. But we're there now. It's better late than never."

His task has not been helped by the absence of a permanent chairman at ITV to replace chairman designate Mr Green. Interim chairman Sir Brian Pitman is leading the search, and possible contenders include former investment banker John Nelson, the former chief executive of Vodafone, Sir Christopher Gent, and former competition commissioner Denise Kingsmill. The board had originally intended to have a new chairman in place before the merger, but it is unlikely that he or she will be named this week.

Mr Allen has promised shareholders £100m of cost savings from the merger, mainly through cutting staff and sharing facilities. And he wants to deliver more savings. "In any business there is never an end, it's only a process," he says.

He has also promised to chip away at the £475m spent each year on licence fees and programmes that ITV is obliged to transmit. Under its public service broadcasting remit, it must show 104 hours of religious programming, 365 hours of network news and 520 hours of children's TV, while rivals like Sky are exempt.

But rather than focusing on cost cutting, Mr Allen is excited about establishing ITV as a heavyweight brand again. "It's not just about saving money. It's about growing the business. What we are doing is selling telly to advertisers."

Analyst Graham Lovelace of Lovelacemedia says that to restore the confidence of advertisers, he has to deliver quality programming to maintain viewing figures.

Mr Allen acknowledges that ITV must target peak ratings, but refutes any suggestion of going downmarket: "Dumbing down does not make much sense commercially. We will be investing more in drama, for example. But you do not want heavy drama all the time.

"Anyway, the idea of elitism is offensive. We are giving viewers something to watch. Celebrity has brought in lots of ABC1 viewers. Besides, 10 million people can't be wrong."

Vicky Knapp, head of television at media buying agency MBOD, says that maintaining market share is now even more important because of new rules determining how much ITV can charge advertisers. To stop the combined Carlton and Granada - the two largest terrestrial commercial broadcasters in the UK - exploiting their dominance to boost rates, the industry regulator Ofcom introduced the contract rights renewal. And under CRR, if ITV's overall audience share falls, advertisers pay less.

"The pressure is on for ITV," says Ms Knapp. "In the past, advertising rates were set on a more piecemeal basis based on the size of advertisers' budgets.

"ITV will now take a more populist commercial approach to programming, which means more shows like Celebrity,"

Advertisers are paying about £90,000 for a 30-second slot in the reality show, she says, even though ITV is not charging a hefty mark-up. But by bringing in bumper ratings, such successes will go a long way to determining ITV's overall market share, and the rates it can charge over the year.

On Thursday, Graham Duff, the new head of ITV Sales, which brings the old sales houses of Carlton and Granada under one roof, gave a presentation in Leeds. Listening were the assembled heads of ITV in charge of scheduling, marketing, programming and commercial activities. The presentation's title reflected the high level of expectation surrounding ITV's new approach to programming, which aligns it more closely with advertising demand. He called it: "I want, I want, I want".

ITV is still a key market for advertisers, but it's no longer the only player in town. While Channel 4 is its nearest competitor as the next-largest commercial terrestrial broadcaster, Sky is now the big threat. The new managing director of Sky Networks, Dawn Airey, has promised to revamp Sky One, whose number one position in multi-channel homes had been threatened by some dire programming. New medical drama Nip/Tuck and the acquisition of cult US drama 24 have given ratings a big boost.

Freeview, the digital box offering ITV, BBC and some Sky channels for no subscription fee, could be the merged company's route to a digital renaissance. ITV1 is the most-watched channel on Freeview, while Mr Allen hopes to add the new ITV Kids and ITV3 drama channels - due to be launched soon - to the platform.

He also has the unenviable task of reassuring investors still bruised by the ITV Digital fiasco, though the responsibility doesn't seem to faze him. "What shareholders have said is 'Get on and deliver the merger.' Any chief executive is only as successful as the results he delivers. But I'm not under any more pressure than other chief executives."

So, to keep his job, all Mr Allen has to do is please viewers, advertisers and shareholders. And if he doesn't? Media analyst Kingsley Wilson of Investec says: "He has bought himself a 12 month window. If he can deliver higher than expected cost savings,and there is a financial turnaround at ITV, he could stay on longer; markets have a short memory. But because of ITV Digital, there is limited scope for further failure."