Friday 1 March 2019 10:52 am

Advertising outlook clouds picture at ITV

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There's excitement over plans for BritBox, but advertising trends at ITV still make uneasy viewing.

ITV (LSE:ITV) has a strategy which is delivering the required results, even though in the very near term the company's own outlook is more guarded.

The inevitable culprit is Brexit, as advertisers become less willing to commit to an expensive, yet usually successful, outlay. In addition, the first half of this year will also bring some tough comparatives, in the absence of the World Cup which was a welcome addition to revenues in 2018.

ITV has long been attempting to wean itself from its historic reliance on advertising income, particularly with the growth of ITV Studios, where the mantra within media that "content is king" remains critical.

As such, the arrival of the joint venture with the BBC in the form of BritBox was well trailed, but is nonetheless an interesting development. On the one hand, with a relatively thin initial investment and in starting from scratch, the service will inevitably begin as being Netflix-lite.

More positively, the sheer breadth and depth of quality content which will be available – particularly in high-end drama where both stations excel and where consumer demand is clear – will likely propel BritBox as a competitor that needs to be taken very seriously. In addition, the previous experience of the US version should provide a head start in implementing the service.

The results show improvements to a number of key metrics, with revenues for the Studios business having risen by 6% and advertising revenues overall having nudged higher, leading to a 13% hike in pre-tax profit.

Perhaps equally comforting with the future in mind is not so much the total viewing figures having risen by 3%, but the online viewership having jumped 32% as the company positions itself for the changing viewing landscape, particularly via its Hub product. Increased programming spend has led to a drop in adjusted earnings, but there is some mitigation as the business continues to identify cost cutting opportunities where applicable.

Despite having topped expectations, the industry is in a state of flux and various concerns have followed ITV in terms of its acquisitions as well as its competition. The shares have endured a torrid year, having dropped 23%, which compares to a decline of 1.8% for the wider FTSE 100.

Speculation of ITV itself as a potential bid target has also subsided, but today’s results show a determination from ITV to continue to play to its strengths. The market consensus may show a warming of sentiment towards the stock, which currently comes in at a cautious buy.


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