Franchise winners could lose money: Advertising sales may fall short of the new companies' hopes. Jason Nisse reports

First Edition

TWO of the new Independent Television franchise holders are expected to make large losses in their first year.

In addition one of the companies which held on to its franchise, HTV, will have to find savings to pay for its new franchise and another, the combined Yorkshire- Tyne Tees group which merged after both had won back their franchises, has had to depend on savings brought by the merger.

Predictions by the stockbrokers James Capel and Smith New Court are that GMTV, which is taking the franchise from TV-am, will lose pounds 4m to pounds 5m in its first year and that Meridian, which is taking the south coast franchise from TVS, will lose pounds 3m to pounds 4m.

While both brokers predict a swift recovery for Meridian, so that by 1995 it should be making profits of pounds 10m a year, neither anticipates such good fortune for GMTV.

Zenith, the media buying group, predicts that GMTV's advertising revenue in 1993 will be just pounds 60m, pounds 20m less than had been hoped for. Out of this GMTV has to pay the Government its franchise fee of pounds 36m plus pounds 9m to cover the statutory charge set down by the Independent Television Commission. Running costs in GMTV's first year are estimated to be about pounds 35m, leaving the company with a projected loss of pounds 20m.

Christopher Stoddard, GMTV's chief executive, dismisses Zenith's forecasts as lacking hard evidence. He says: 'We have firm bookings for more than pounds 50m of sales and will exceed our predictions.'

He says start-up costs are 15 per cent below GMTV's budget. 'We are hoping to at least break even in 1993.'

GMTV faces perhaps the most difficult of all markets for revenue. But all the franchise winners face the problem that the economic conditions they are facing are much worse than they had predicted when they made their franchise bids in May 1991. Then, advertising revenue had fallen for the first time in nearly 20 years. Nobody in ITV thought it would fall further, but in real terms 1992 has been worse than 1991.

All the ITV companies predicted real growth - when inflation is taken into account - in advertising expenditure during the 1990s.

According to Zenith's predictions, ITV's advertising revenue will shrink in every year up until 2000. It says that, in constant 1991 prices, advertising sales by ITV in 2000 will be at least pounds 100m less than last year.

This assumes, though, that Channel 5 will eventually get off the ground. Plans for the new network have now been put on ice as the only applicant, a consortium led by Thames, was deemed not to have a viable business plan.

Even ignoring Channel 5, Zenith argues that the impact of satellite and cable television, plus the growing importance of Channel 4 which starts selling its own advertising tomorrow, will eat into ITV's dominance.

While both Channel 4 and British Sky Broadcasting are unable to deliver the audiences that can be found on ITV, they can deliver a national coverage. As BSkyB's audiences improve, so does its ability to sell advertising.

Carlton, in London, is breathing a sigh of relief after the Channel 5 decision. Thames's plans were to start its Channel 5 service in London initially.