anybody have thoughts on itv

ITV's 2005 licence fee slashed by 135 mln stg in Ofcom review UPDATE
AFX


(Adds details on Ofcom review and ITV response)

LONDON (AFX) - The UK's communications industry regulator said it has cut the annual fee payable by ITV PLC for its 12 licences to less than 80 mln stg for 2005, a fall of 135 mln stg from the 215 mln the company paid in 2004.

The reduction, which was larger than the 90-95 mln stg analysts had expected, is part of a review into licence fees by Ofcom and takes into account the growth of digital television.

The regulator has also reduced the licence fees payable by SMG PLC for its Scottish TV and Grampian TV franchises to between 1-1.5 mln stg for 2005 from 4.5-5 mln stg last year.

ITV said the new licence fee terms proposed by Ofcom are likely to lead to further sharp cuts in payments beyond 2005 as the growth in digital take-up continues. Licence fees are made of up a fixed cash sum and a variable sum based on the income earned from advertising on analogue channels.

Ofcom's new proposal will see the cash sum for ITV's licences fall to 4 mln stg in 2005 from 70 mln last year. Variable payments will account for 95 pct of 2005, and these are set to reduce progressively with digital take-up.

When the switchover to digital TV is completed in 2012, variable payments will fall to zero and total ITV licence payments will be just 4 mln stg in 2005 terms.

Ofcom said the level of future payments is dependent upon advertising revenue and digital take-up.

The licensees have until July 25 to inform Ofcom that they wish to accept the terms. If accepted by the licensees the revised terms will be backdated to apply from Jan 1 2005 to Dec 31 2014.

ITV said it welcomed the Ofcom review, adding it would provide greater certainty over variable payments for income from advertising on analogue channels.

Commenting on the Ofcom review, ITV chief executive Charles Allen said: 'These terms mean a very significant reduction in licence payments for ITV PLC this year, with further steady reductions to come.

'Across ITV1, ITV2, ITV3, ITV4 and the ITV News Channel, ITV will invest around 1 bln stg in high quality programming this year. It is critical that ITV has the firepower to sustain this investment and take forward its digital strategy.'

Blue-Chip Movers

Investors switched on to ITV shares today after Ofcom announced a cut in the light "entertainment" channel's annual licence fee that was larger than the market expected. the stock added 6.5p to 122.5p. Under the new terms for ITV 12 licences, which included GMTV, it was estimated that payments for 2005 will be less than 80 million pounds - a fall of 135 million pounds compared with total 2004 payments of 215 million pounds. A cut of around 90% had been factored in the market. the review of fees was prompted by the penetration of relatively new digital channels. Following the announcement, CSFB said that its previous forecast of license costs was 110 million pounds. The actual cut in the fee, the broker calculated, would equate to roughly a 10% upgrade to pre-tax profits. It thought this should help mitigate recent pressure on earnings from the weak advertising market. It maintained its "outperform" stance.

Back in London, ITV was the top performer, up over 5 pct, or 6-1/2 pence at 122-1/2, after Ofcom made a bigger-than-expected cut to the broadcaster's annual licence fee.

The communications industry regulator cut ITV's licence fee to less than 80 mln stg for 2005, down from 135 mln stg last year.

In response, ABN Amro reiterated its 'buy' advice with a raised price target of 136 pence, up from 129, while UBS stuck to its 'buy' advice.

Ofcom has announced the proposed terms of ITVs license renewal and as we had hoped the terms are favourable. The overall license cost falls from c175m under the old terms to c 77m under new proposed terms highlighting the perception that ITV is dealing with a benign regulator. We expect ITVs earnings to improve over the next few years enhanced by merger cost savings and the lower license fees and despite the strong rise in the share price since the beginning of the year we remain buyers of the shares.

This is now looking very good for a bid soon!