Shock waves are rocking the UK's largest commercial broadcaster following a report by Merrill Lynch analysts that ITV's advertising revenues would be far worse than expected this spring. 
     Merrill Lynch's forecast has deepened long-standing pessimism over the channel's prospects in 2001 as advertising declines from the record levels of last year. 
     ITV is the most established commercial broadcaster in the UK, with Granada, Carlton Communications, and Scottish Media Group holding 11 of the 14 regional licenses that make up this national TV network. 
  Merrill Lynch predicts that ITV's advertising revenue in April will likely be at least 20 percent lower than last year and that this will lead to an 11.7 percent decline in the first half and a one percent drop for the year as a whole.
    The downturn in advertising income comes despite marked improvements in the performance of ITV's programming this year, with shows such as "Who Wants to be a Millionaire" and the reality TV hit "Popstars" contributing to an increased lead in audience share over its main rival, BBC1.
    Indeed, what a difference a year can bring. Last year, ITV achieved record advertising revenues even as viewing figures declined. This year the channel's programs are performing well but ad revenues are falling away. 
     ITV's ad problems are not unlike those of a lot of U.S. media companies. The network had expected advertising to fall below last year's levels, in part because of reduced spending by cash-strapped dot.coms. But also playing a role were more general fears among advertisers about prospects for the world economy.
     However, these latest forecasts demonstrate fresh concern that the outlook could be worse than expected. 
   According to Merrill Lynch, car manufacturers and telecommunications companies have already scaled down their spending on ITV. Also in decline is advertising by the meat industry as it confronts the outbreak of foot-and-mouth disease.
    As in all such dicey markets, companies that hold their nerve and stay on the air stand to benefit from a double-digit deflation in the cost of airtime on ITV.
    Recovery in ITV's advertising revenues is expected in the second half of the year. From August onwards the schedule will be further strengthened by the move of Premier League soccer highlights from the BBC to ITV.
    Rival broadcasters have fared better under market conditions than ITV so far.
     Channel 4 has bucked the trend by recording an increase in advertising this year, partly because of its status as the preferred channel for advertisers targeting the coveted 16 to 34-year-old market.
     Meanwhile, Rupert Murdoch's BSkyB, the satellite pay-TV company, is also expected to show advertising growth because of the increased number of viewers switching to digital  television.

-Simon Bond covers European media for Media Life, writing from outside of London.

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