Rocky road for ITVas investors switch off

Dividend at risk in war with Netflix and Amazon

ITV is still a staple in most British living rooms, but among investors its popularity is slipping.

Shares in the broadcaster have tumbled 34pc over the last year, and at 107.25p are trading 59pc lower than their high of 262p in 2015.

Deaths of participants who have appeared on its reality TV shows recently – including The Jeremy Kyle Show and Love Island – have only added to ITV’s troubles.

The FTSE 100 firm was already facing stiff competition from the likes of Netflix and Amazon Prime, which are stealing viewers. It is also struggling to pull in the same amount of cash from advertising on its TV channels.

‘The company is facing a few headwinds at the moment,’ says Adrian Lowcock, head of personal investing at Willis Owen.

‘It cannot match the spending power of online streaming giants such as Amazon and Netflix and Brexit is an issue. Both impact the company’s advertising revenues.’

Analysts have blamed Brexit for knocking companies’ willingness to spend on TV advertising.

For ITV, which generates a huge chunk of its money from advertising, this is certainly a concern. In the company’s first-quarter trading update earlier this month, ad revenue was down 7pc from a year previously at £417m.

But should this be scaring investors away from the broadcasting titan, which still saw viewers watch 4.4bn hours of its shows in the first three months of the year?

Under the surface, ITV’s advertising figures are not as worrying as they might first appear, according to Liberum’s Ian Whittaker.

While advertising spending might

be slipping at the smaller channels like ITV2, ITV3 and ITV4, he believes the firm’s flagship ITV1 channel is in rude health.

Added to that, ITV managed to steal a larger share of the mainstream family viewing audience over the first three months of the year. It now dominates 24pc of that market. So while the smaller ITV channels might not be pulling their weight, ITV is hardly in trouble.

But on top of advertising, there is the more worrying trend of changing technology. YouTube is pulling in increasing numbers of younger viewers, while Netflix – with its big-budget series like The Crown and Stranger Things – is appealing to all ages.

ITV is working on a comeback to the tech invaders in the form of Britbox. The subscription service, developed in partnership with the BBC, will allow viewers to cycle through all of the two biggest British TV groups’ back catalogues.

ITV has taken a major punt on Britbox becoming a success, promising to invest £65m in the venture by the end of 2020.

The service already has more than 500,000 users in the US, but is yet to become profitable. And rumours that ITV and the BBC are already disagreeing over how fully the latter is committed to the project, since the former is the only partner to openly commit funding, are doing little to boost investor confidence.

Claire Enders, the founder of media research firm Enders Analysis, says: ‘If Britbox is a success, it’ll be in three or four years’ time. If it’s not, it’s going to weigh on the company because it hasn’t announced any other financial partners.’

WhILE

launching an on- demand subscription service certainly seems necessary to keep younger viewers watching ITV shows, Whittaker notes that ITV’s bedrock shows such as Coronation Street and Emmerdale are still going strong.

And other sources of revenue, such as ITV Studios, shouldn’t be discounted. This production arm of ITV has created BBC’s two biggest shows of the last two years, in the Bodyguard and Line Of Duty, and its own hit show Victoria.

But Enders says this is ‘nowhere near enough’.

‘Making very successful shows is not budging the share price,’ she adds, noting that ITV Studios would have to sustain its winning streak of big-hit programmes for several years if they were to really make an impact.

Some investors have mooted that ITV’s struggles at the moment may leave it vulnerable to a takeover. Liberty Global, the media giant which owns Virgin Media, built up its stake in ITV to 9.9pc in 2015, sparking speculation it may launch a bid.

But Enders thinks that is unlikely. ‘As we see companies resisting investing in the UK due to uncertainty, it doesn’t take a genius to work out that they’re probably pretty resistant to buying a UK company as well,’ she says.

however, ITV still has one of the things that most tech firms would envy – a huge captive audience.

And if ITV’s new online advertising plan for its catch-up service hub goes well, as it aims to specifically target ads to viewers by gathering their data, the company could begin raking in more money from advertisers.

What seems certain is that ITV’s road will be rocky for the next few years. Enders says the company may even be well advised to cut the dividend to help keep talent and hold some money in the kitty.

For now, the company will be keeping its fingers crossed that advertisers keep spending, and that Britons love their old TV shows enough to splash out on Britbox.