Scottish Media unlikely to seek early renewal of licences

Scottish Media, owner of the Scottish and Grampian independent television franchises, said yesterday it was unlikely the group would seek early renewal for its two licences as there would be no economic benefit.

Andrew Flanagan, managing director, said: "We think we are unlikely to go forward early unless there are good economic reasons for doing so and at the moment there is no evidence of that yet."

In July, the ITC released a consultation paper on early licence renewal whereby the ITV companies have the right to renegotiate new terms for their licences to apply from January 1999.

However, analysts forecast SMG could lose out by up to pounds 8m per year when the licence terms are reassessed, which must be done at the latest before the current 10-year licences run their course by 2002.

The Scottish TV licence has one of the lowest fixed annual payments among all the ITV companies, paying an index-linked pounds 2,000 each year while Grampian pays an index-linked pounds 799,000 per annum.

Mr Flanagan's comments followed the release of the company's results for the first six months of the year to June which showed that pre-tax profits climbed from pounds 10.3m to pounds 18.5m, in line with analysts' forecasts.

He said the ITV network had suffered from lower advertising spend in the second quarter of the year due to competition from Channel 5 and a tough comparison period with last year when coverage of the Euro '96 tournament boosted spending by advertisers.

However, Mr Flanagan said the Channel 5 effect represented a "pause for breath" in ITV advertising spend rather than a long-term trend.

Advertising revenue growth is expected to pick up in the third quarter though the increase will be fairly small, he added.

At the group's newspaper division, advertising revenue growth had been virtually flat year-on-year as volume growth was affected by the group's efforts to improve yield.

"We have increased yield from press advertising by 14 per cent and now we are beginning to see volumes pick up even at the enhanced prices," said the finance director, Gary Hughes.

The ability, since the recent acquisition of Caledonian, to offer joint press and television advertising packages had boosted the advertising performance in the period, Mr Flanagan said.

"We've had a lot of success with that [selling combined packages] mostly with press advertisers being introduced into the television area," he said.

He added that the group was on target to realise the pounds 3m of cost savings from the integration of Caledonian that were flagged at the time of the takeover in October 1996.

At the half year stage, pounds 2m of savings had been realised, which was ahead of target for pounds 1.5m in the first year from acquisition. A further 30 staff cuts would be made in the second half of the year, taking the total head count reduction to 80, around 10 per cent, since takeover.

The integration of Grampian, which was bought for pounds 105m last month, has only just commenced, but Mr Flanagan said that having looked at the opportunities he was "comfortable" with analysts' forecasts for pounds 2m of cost savings over two years.