Television dispute over as STV and ITV secure "milestone" deal By MARTIN FLANAGAN Published on Tuesday 6 March 2012 00:00 SCOTTISH broadcaster STV and ITV yesterday struck a "milestone" agreement on groundbreaking new networking arrangements that are seen as formally drawing a line under their lengthy litigation. Under the deal, STV will become an affiliate of the Channel 3 network, allowing the Scottish company to pay back a legal settlement balance of £10.8 million to ITV in programme stock and cash over the next 18 months. Sources said the payment would mainly be in programmes, thereby strengthening STV's balance sheet. Agreement in principle had been reached last summer between the warring parties, which had previously each claimed under the historic networking agreement that they were effectively subsidising the other in programming costs. STV said yesterday in a statement that it was "confident that the new arrangements will deliver sustainable cost-sharing arrangements for the network and enable the continued delivery of high-quality commercially sustainable public service broadcast services into the next licence period." Crucially, industry experts said the new deal involves STV and UTV in Northern Ireland paying a set fee on an annualised basis, with transparent agreed costs, towards programme-making budgets. Previously, the two companies paid a "share" of the costs to ITV upfront before production. Rob Woodward, chief executive of STV, said the new deal confirmed the "stability and certainty" of arrangements between all the Channel 3 licence holders. "STV remains 100 per cent committed to its public service broadcasting credentials, to delivering a distinct schedule for Scotland and to providing a platform for informed public debate," Woodward said. We are delighted to have reached agreement on a set of terms which will benefit our viewers and consumers across all distribution platforms. Adam Crozier, the Scots-born chief executive of ITV, said the group looked forward to continuing its "positive relationship" with STV under the new affiliate agreement, which needs regulatory approval from Ofcom. Crozier said the deal "represents a major milestone for us as it consolidates and simplifies the ITV network." Yesterday's agreement changes the way that STV acquires programming from the ITV network for broadcast in its licence territories. Brokers said it meant that instead of contributing to programme costs ahead of the production process, STV will now effectively operate a "pay as you go" model annually nearer to the point of broadcast. They said it represented a better operating model for the company, which at the height of the legal dispute with ITV last year refused to broadcast prime time ITV hits in Scotland such as Downton Abbey. The dispute, in turn, saw litigation expenses of £13.5m help push STV to a pre-tax loss of £900,000 in 2011. That compared with a profit of £3.9m in the previous year. Patrick Yau, media analyst at broker Peel Hunt, said the new pay-as-you-go system "substantially reduces the working capital requirement [of STV] as inventory levels fall, ultimately helping to reduce net debt." Analysts estimated that STV's net debt for 2012 may be around £4m lower as a result. Yau added: "We believe this announcement draws a line under the ITV litigation and settlement issues and paves the way for the two to work more closely together as we approach licence renewal."