September 15, 2009 / 6:37 AM / 10 years ago

UPDATE 2-Competition body says ITV ad rules still needed

* Says some sort of regulatory system still needed

* Says looking at variations to CRR

* To publish final decision by year end

* Shares down 4.3 percent at 0747 GMT (Adds detail, background)

By Kate Holton

LONDON, Sept 15 (Reuters) - Rules governing how much Britain’s biggest commercial broadcaster, ITV (ITV.L), can charge advertisers cannot be removed but they could be adapted for the changing market, the competition watchdog has said.

ITV has led a public campaign to see the regulatory system for its main channel changed, arguing it acted as a straitjacket which hampered innovation and taking risks and was not suitable in a fragmented market with so many digital channels.

The contract rights renewal (CRR) system links advertising prices to viewing figures and was introduced in 2003 when ITV formed from a merger of Granada and Carlton, to prevent it abusing its dominant position.

The Competition Commission agreed in part, but said the bargaining strength of advertising agencies had still not increased.

Numis analyst Paul Richards said the language was tougher than expected; shares in ITV were down 4.3 percent at 0747 GMT.

“ITV1 has seen a decline in its share of both viewers and advertising revenues since 2003 and there are now more alternatives for advertisers,” the Commission said.

“(But) the CC has found that ITV1’s continuing ability to reach large numbers of viewers, and the strong bargaining position this gives it with media buyers, requires the retention of the CRR undertakings, although some variations might be justified.”

The Commission suggested several proposals including increasing the definition of viewers for ITV’s main channel, by including viewers to any new channels such as ITV high definition and a catch up ITV1 +1 channel.

It is also looking at other ways of addressing the competition concerns, such as separating air time into large and normal audiences, in view of the fact ITV can still draw huge audiences for programmes such as England sports and entertainment programmes like the X Factor.

The Commission will now consider responses to its suggestions and publish a final decision around the end of the year.

ITV, which saw first-half net advertising revenue for the family of channels fall 15 percent, said in a statement it welcomed the Commission’s work.

The announcement comes during an important time for ITV as it prepares to announce a new chief executive and ahead of a government announcement that it is considering allowing product placement.

However some analysts had initially hoped for a complete withdrawal of the system when a review was first announced and the tone of the statement, insisting that CRR is still needed, could disappoint. (Reporting by Kate Holton; Editing by Dan Lalor and Rupert Winchester)

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