Get me out of here... ITV wres­tles with tough­est trial

TV ad­ver­tis­ing is off a cliff due to Covid and now on its 65th an­niver­sary, the group is set to drop out of the FTSE 100, finds Han­nah Boland

The Daily Telegraph - Business - - Technology Intelligen­ce -

At the start of the year, hopes were high for ITV. The Euro 2020 foot­ball tour­na­ment was on the hori­zon, and Win­ter Love Is­land was about to kick off – both draw­ing in advertiser­s. The com­pany had also fi­nally started to take con­crete steps to ward off grow­ing com­pe­ti­tion from US gi­ants Net­flix and Ama­zon with the launch of its joint sub­scrip­tion stream­ing ser­vice Brit­box.

What’s more, an­a­lysts were op­ti­mistic that ITV could emerge as a post-Brexit re­cov­ery play, mir­ror­ing the re­bound it en­joyed af­ter the 2008-09 fi­nan­cial crash.

“If you’d have asked me in Jan­uary, be­fore Covid-19, it would have been one of my stocks for the year,” says Alex DeG­roote, a me­dia con­sul­tant and for­mer City an­a­lyst.

Months later, and re­al­ity has hit hard. As Covid-19 wreaked havoc across the UK, ITV suf­fered the sharpest ad­ver­tis­ing de­cline in its broad­cast­ing his­tory.

High-pro­file shows such as Love Is­land were can­celled due to pro­duc­tion re­stric­tions.

Oth­ers such as I’m A Celebrity ... Get Me Out

of Here and The

Masked Singer are still set to shoot later this year, although in dif­fer­ent for­mats. It has been, boss Carolyn McCall ad­mit­ted, a “test­ing” few months – a pe­riod which this week looks set to be capped off with ITV fall­ing out of the FTSE 100.

“It’s prob­a­bly been the most dif­fi­cult time that ITV has ever faced,” says Claire En­ders, chief ex­ec­u­tive of En­ders Anal­y­sis. “In fi­nan­cial terms, the com­pany’s in much bet­ter shape than it was in 2008/09”. But, she says, “it is an equiv­a­lent night­mare”.

ITV has been here be­fore. In 2008, the com­pany was rel­e­gated from Lon­don’s FTSE 100 in­dex in the wake of an ad­ver­tis­ing down­turn. In the years af­ter, Adam Crozier and Archie Nor­man, at the time boss and chair­man of ITV re­spec­tively, worked to re­pair the bal­ance sheet and build up pro­duc­tion as­sets, un­der the ITV Stu­dios um­brella, as a hedge against any down­turn in the volatile ad mar­ket.

Ul­ti­mately, ITV re­joined the FTSE 100 again in 2011 and, by the time Crozier left ITV in 2017, the com­pany was re­port­ing an an­nual profit of more than £500m. Its share price stood at around £2.

Yet, whilst the turn­around was dra­matic, few would ar­gue that Crozier left ITV as an or­gan­i­sa­tion which was pro­tected against any fu­ture ad­ver­tis­ing down­turns. Huge head­winds were on the hori­zon – not least the boom in on­line TV and film. “Crozier timed his exit per­fectly,” DeG­roote says. “It’s just been down­hill ever since McCall came in and is it her fault? Not re­ally.”

Since the for­mer easy­Jet ex­ec­u­tive took over at ITV, she has had a hard task on her hands. Her fo­cus has been on dig­i­tal­is­ing the com­pany’s op­er­a­tions, in­vest­ing heav­ily in ITV stream­ing ser­vices in a bid to com­pete with Sil­i­con Val­ley gi­ants. Yet, such ser­vices strug­gle to com­pete against the likes of Ama­zon and Net­flix when it comes to con­tent bud­gets.

What’s more ITV’s stream­ing ser­vices rely heav­ily on archive ma­te­rial. Re­runs of Em­merdale won’t dom­i­nate the con­ver­sa­tions on so­cial me­dia like The Man­dalo­rian and

Stranger Things do.

“It’s very niche,” En­ders says. “It would have been very naive if the com­pany be­lieved that launch­ing Brit­box would some­how re­vive its for­tunes the way that Dis­ney Plus is re­viv­ing Dis­ney’s for­tunes.” Fur­ther re­stric­tions in the ad­ver­tis­ing mar­ket, curb­ing gam­bling and, from next year, fast food ads from ap­pear­ing on TV, are also weigh­ing heav­ily on ITV’s share price.

In­vestors ap­pear un­con­vinced by the sta­bil­ity pro­vided by the pro­duc­tion as­sets bought un­der Crozier’s ten­ure, ITV’s share price re­main­ing low de­spite the sup­posed hedge against the ad volatil­ity.

“The fact that in­vestors con­tin­u­ally mark the stock down tells me that they don’t re­ally be­lieve in their re­cov­ery po­ten­tial this time around,” DeG­roote says.

All this has com­bined to ramp up spec­u­la­tion over a po­ten­tial takeover. Talk of such a move by a US me­dia gi­ant has been cir­cu­lat­ing for a while, but given the re­cent share price crash, many see the pos­si­bil­ity as more im­me­di­ate.

“Ul­ti­mately, it seems very likely to me that ITV will even­tu­ally form part of some­one else’s global scale play,” says En­ders. “It looks in­evitable and the Covid cri­sis will have ad­vanced those ar­gu­ments.”

Later this month, ITV turns 65. It may have been ex­pect­ing to cel­e­brate with bal­loon­ing ad­ver­tis­ing rev­enue from slated sports events and grow­ing sub­scriber num­bers from its Net­flix ri­val. Now, though, the head­winds are pil­ing up. For ex­ec­u­tives, a takeover may pro­vide a way out. And for ITV, re­tire­ment could be on the cards.

Carolyn McCall, inset, is un­der pres­sure af­ter ITV’s ros­ter of hit shows were dis­rupted

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