U.K. Merger Would Create Industry Behemoth

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London-- The merger of two British media companies would
create an industry giant that would control huge pieces of the country's TV audience
and advertising.

Carlton Communications plc and United News & Media plc,
which agreed last month to merge operations, would combine for a market capitalization of
about £8 billion ($12.8 billion).

If the deal goes through, it would create a single company
reaching 65 percent of the United Kingdom broadcast-television audience. Combined, the new
group would have an annual income of some £4 billion ($6.4 billion) and operating profits
in the region of $1 billion.

Looking at the overall picture, including satellite and
cable, the new company would also control an estimated 41 percent of U.K. TV advertising
-- well above the 25 percent allowed under current broadcasting regulations. Because the
deal would surpass existing limits on size and audience share, it would need either the
repeal of or amendments to the U.K.'s complex broadcasting regulations.

An investment analyst last week said any changes in the TV
regulations to help this deal along could risk opening the door to any number of rival
entrants, ranging from Rupert Murdoch's News Corp. to powerful European- or
U.S.-backed media groups.

A stronger combined outfit -- if rival Granada Group plc
doesn't itself enter a bid for either Carlton or UN&M -- could mean a wholesale
re-evaluation of their involvement in niche television.

Carlton and Granada jointly own digital-terrestrial
platform ONdigital, and could sell part of the company in an initial public offering next
year on the back of expected buoyant holiday sales.

If the deal goes through, there is some speculation that
either Carlton or Granada could unload its stake in ONdigital.

So far, United News & Media's only significant
investment in thematic TV has been in the Rapture teenage channel.

The new company would have just one main rival in
over-the-air TV, Granada, which to date has dominated the ITV network. So far, neither
Carlton or United News & Media have made much of an inroad into multichannel TV
programming. Analysts were also skeptical of whether the new entity would lead to any real
progress in the new-media sector.

"Carton and [United News & Media], even if merged,
pose no current threat to the experienced multichannel hands" of Flextech plc,
British Sky Broadcasting Group plc, Discovery Channel, Turner Broadcasting System, MTV
Networks or the British Broadcasting Corp, said one analyst. "All these [companies]
have years of successfully migrating programming and brands across into the multichannel
universe. Both Carlton and [United News & Media] have yet to prove their skills in
these areas."

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