ITV faces record fine for phone-in scandal

The media watchdog Ofcom plans to record a damning verdict and hand down a record seven-figure fine after a six-month investigation into premium phone line deception on some of ITV's biggest shows.

It is rumoured that the proposed fine is about £4m, although the final figure is yet to be set. That would double the previous record levied against GMTV, itself 75% owned by ITV, last year. Ofcom is believed to be about to publish its verdict on the premium rate phone line scandals, which the broadcaster admitted last year, involving high-profile figures such as Ant and Dec and Simon Cowell.

Viewers of programmes including Saturday Night Takeaway and Soapstar Superstar wasted £7.8m on phone calls that had no chance of winning on-air competitions or had no impact on the outcome of interactive votes. The revelations were among the worst to emerge during a year which saw all the big terrestrial broadcasters beset by crisis after crisis.

It is believed that ITV chairman Michael Grade's swift action in appointing Deloitte to conduct an internal review, together with ITV's promise to spend £18m on compensation and other remedies, has helped mitigate the final total. ITV argued at the time that guilty producers were "motivated by their professional instinct to produce the best show" rather than a desire to maximise profits. Under the terms of its licence, ITV could have been fined up to 5% of its qualifying revenue, a total of £70m.

But Ofcom is still expected to be damning in its criticism of a broadcaster that saw premium phone line revenue as a panacea for plummeting advertising revenue in a fragmenting media market. At the time Grade, who admitted the "serious editorial failings" were "shocking" and promised "zero tolerance" on deception, was criticised for failing to sack any of the senior executives in charge. Deloitte's review, published last October, found "serious editorial issues" with three programmes and highlighted "serious technical issues" with two more.

In one regular feature on Saturday Night Takeaway, viewers hoping to enter the Jiggy Bank competition were discounted unless they happened to live within an hour of a pre-determined location. On Gameshow Marathon, contestants were surreptitiously visited by production teams and those who would make the best television were picked. Votes to Soapstar Superstar were ignored in favour of the production team's favoured choice.

The fine is set to be more than double the record £2m handed last September to GMTV, which admitted to "widespread and systematic deception" of viewers who wasted up to £35m entering competitions they had no chance of winning. This month, ITV's accounts revealed it had lost £58m in revenues in 2007 after it was forced to suspend premium-rate services. As consumer confidence collapsed, it also axed its interactive quiz channel ITV Play, although premium-rate interactivity later returned to hit programmes such as X Factor and Dancing on Ice.

Last night, ITV said it was "not aware of the exact timing or outcome of Ofcom's judgment". An Ofcom spokesman added: "We would not comment on an investigation that has not concluded. If there was to be a fine for any broadcaster it wouldn't be communicated until immediately prior to publication."

Ofcom is still looking into about 20 other cases that emerged last year in revelations which fall into two categories: premium phone line fraud and crossing the line between acceptable editorial artifice and deception. Ofcom head Ed Richards wrote to ITV last year to demand any other evidence and widened its inquiry to include shows from independent producers not fully investigated by Deloitte.

The anticipated record £4m fine would be a "bit of a result" for the broadcaster - and executive chairman Michael Grade handled the controversy well, media and industry analysts say. The fine is was well below the £70m maximum from regulator Ofcom and lower than many had predicted. "Compare the size of GMTV and ITV and outwardly financially it is probably a bit of a result," said Jim Marshall, the chairman of Starcom UK. "But the ruling has to take into account the way it was handled. Michael Grade handled it well in accepting responsibility, getting ITV's house in order and there was a feeling that most of the problem was under the previous regime. I expect that Ofcom want to draw a line under this and move on."

Other analysts said the fine was small in the context of ITV's revenues - about £265m in pre-tax profits in 2007. "You are talking about a company that makes hundreds of millions in pre-tax profits so £4m is neither here nor there," says Alex DeGroote, a media analyst at Panmure. Despite the fine being far below the maximum available to Ofcom, in the wider context of breaches of the broadcast code the fine is still likely to be double the previous record levied against GMTV. "It does feel like it could have been much worse but it is still a significant amount of money," said Richard Oliver, managing partner at media agency Universal McCann. "If ITV's TV revenue dropped by £4m in a month that would be a big deal and such a sum can't be dismissed easily. It seems like a reasonable result all round, sending a suitably strong message - but it isn't crippling either."

Beyond the value of the fine, the industry will examine how damning Ofcom's ruling is against the broadcaster and its operations. Previous rulings have included forcing broadcasters to make several on-air apologies. "It would send out the wrong signals to hammer them [with a huge fine]. Ofcom has to take everything in the round," says DeGroote. "A punitive fine would not have served a good purpose in light of ITV's low share price, poor morale in general and an unhealthy advertising outlook. Ofcom has to take a broader view and been sensible in its decisions."

So, what exactly is Ofcom investigating?

Ofcom is empowered by the Communications Act to monitor breaches of its broadcasting code. This contains guidelines on the conduct of interaction with viewers, including phone-in competitions.

What sort of sanctions could Ofcom impose for breaches of its code?

The regulator can decide to restrict itself to just rebuking a broadcaster for infringements of its code. It could go further and require the broadcast of an apology - the sanction imposed on Channel 4 last year for the Celebrity Big Brother racism row. At the far end of the punishment spectrum, Ofcom can curtail or even revoke a broadcaster's licence. For many serious infractions of the code, it is able to levy fines.

How high can such fines go?

Ofcom is able to fine up to 5% of "qualifying" revenues - those from advertising and sponsorship. ITV's net advertising revenue last year was just shy of £1.5bn, hence speculation that fines could reach about £70m.

But would it ever be that high?

No, that would be very unlikely: Ofcom takes into a variety of mitigating factors in setting fines. The watchdog's starting point is that "any penalty must be appropriate and proportionate to the contravention in respect of which it is imposed. In addition Ofcom must have regard to any representations made to them by the regulated body in breach."

So what sort of factors are we talking about to start with?

The seriousness of the breach, any precedents set by previous cases and the need to ensure that penalties operate as a deterrent in the future.

Anything else?

Yes, specific factors would also have an impact. For instance, any gain, including a financial one, made in the process of breaching the code; the degree of harm caused; the size and turnover of the regulated body; the extent to which any contravention was out of the broadcaster's control; the duration of the breach; whether a penalty has already been imposed and audience expectations.

What would aggravate a penalty?

A repetition of the breach; continuation after being made aware of the fault; the extent of senior management's knowledge of a breach; the absence or failure of internal procedures intended to prevent breaches.

What would decrease the penalty?

Any steps taken in advance to identify and mitigate external factors; the extent and timeliness of any steps taken to end the breaches, any steps taken for remedying its consequences and cooperation with Ofcom.

So where does that leave us?

The regulator says it will consider the factors listed above and take regard of any representations from parties. To quote Ofcom: "Ofcom will determine an appropriate and proportionate penalty. In doing so it will ensure that the amount does not exceed the maximum penalty for the particular type of contravention."