Thursday 5 March 2020 10:38 am

Coronavirus: ITV shares fall as travel firms pull advertising

Coronavirus has hurt 2020 demand for ITV advertising as travel operators stopped booking ads with the broadcaster, but it has posted better than expected earnings for 2019.

MGM and Universal’s decision yesterday to delay the release of the next James Bond movie, No Time To Die, from April to November due to the coronavirus outbreak, will also hit ITV’s ad revenue.

That knocked FTSE 100-listed ITV’s share price down almost 10 per cent in early trading.

Read more: Kantar appoints former ITV boss Adam Crozier as chairman

The figures

Profit before tax fell seven per cent year on year to £530m, offset by ITV’s £62m sale of its historic London Television Centre home.

Advertising revenue dipped 1.5 per cent to £1.77bn but total revenue inched up three per cent to £3.89bn. A seven per cent climb in non-advertising revenue to £2.12bn and a nine per cent jump in ITV Studios revenue to £1.82bn underpinned the overall rise.

However, broadcast revenue slipped two per cent to contrast a 21 per cent jump in online advertising.

Earnings per share rose one per cent to 11.8p as the building sale reduced ITV’s effective tax rate. 

ITV said it will pay a full year dividend of 8p per share, flat on last year. And the broadcaster cut net debt by £123m to £804m.

Read more: Spitting Image to return after 24 years following Britbox commission

Why it’s interesting

ITV’s 10 per cent drop in earnings before interest, tax, depreciation and amortisation (Ebitda) to £729m was better than market expectations.

But the broadcaster said the ongoing coronvirus outbreak, which has affected 87 people so far in the UK, has hurt advertising revenue in 2020. 

“In March and April, we have seen an impact from travel advertising deferments relating to the coronavirus,” ITV said. “At this stage it is too difficult to assess the further implications of the coronavirus but we continue to monitor the situation closely.”

“At this time of year it’s £130m of ad spend month by month so even a relatively small percentage change can equate to a lot of money,” chief financial officer Chris Kennedy said.

“All we have seen so far is a deferral of spend and it’s been restricted to travel companies and the Bond movie.” 

“There’s no question we would have any trouble there.”

Chief executive Carolyn McCall has ruled out non-essential foreign travel for ITV staff after the UK warned a “significant” spike in British coronavirus cases is likely.

And she said ITV is drawing up contingency plans for all its channels following the postponement of some Six Nations rugby matches, including Ireland vs Italy.

Advertising agonies

The results come at a testing time for the public service broadcaster as it battles a wider downturn in viewing figures and advertising revenue as viewers increasingly turn to streaming services such as Netflix.

Total viewing hours slipped four per cent last year to 16.3bn as the company struggled to fend off tough competition for eyeballs.

As viewing habits have changed, the broadcaster has been reliant on a handful of big hits, including landmark sporting events such as the Rugby World Cup.

It has also enjoyed success with I’m a Celebrity Get Me Out of Here and Love Island, which launched a winter series for the first time.

However, the company has been plagued by controversy around the death of former Love Island host Caroline Flack earlier this year.

It was also forced to pull the Jeremy Kyle show after the death of a former contestant.

However, ITV has seen some progress in its strategy of investing in its Studios arm, which produces original programming. Studios revenue jumped nine per cent to £1.82bn over the year.

Richard Hunter, head of markets at interactive investor, said the growth was “further vindication of a changing strategy, given that the group owns and manages its own content, with some significantly successful programmes having been produced”.

“The principal difficulty for ITV, however, is its ongoing reliance on advertising revenue, which still accounts for around half of the group total,” he said.

“With many viewers now choosing to stream programmes, at a time of their choice through any number of alternatives, the room is becoming more crowded, with the likes of Netflix, Amazon, Disney and Apple not only chasing market share but with some very deep pockets to achieve their goals.” 

Six Nations delay deepens ITV fall

Read more: England’s Six Nations rugby game against Italy postponed amid coronavirus outbreak

ITV’s share price drop deepened as reports emerged Six Nations organisers are set to postpone England’s match against Italy.

The match was due to take place on 14 March behind closed doors in Rome after a spike in Italy’s coronavirus outbreak. But today a flurry of reports suggested a delay was nigh. 

World Cup winner Sir Clive Woodward wrote in the Mail he expects UK sport to be on “lockdown” by the end of the month.

“As for the Six Nations, I would suggest this will be the final weekend. I don’t see how any of the games next weekend can, in good faith, be allowed to take place,” he said.

“Unless I’m mistaken the situation is going to get worse before it gets better and although we have escaped relatively unscathed in the UK so far, we have to prepare for the worst.”

Read more: Coronavirus: Ireland v Italy Six Nations match postponed due to outbreak in Italy

“We are working through our contingency plans by programme genre,” McCall said.

“Sport obviously has one eye to Euro 2020 but we are certainly focused on the rugby and having a contingency plan in place. Euro 2020 is further away.”

ITV also said it would keep its dividend flat at 8p in 2020.

Read more: BritBox launches in the UK – but can it challenge Netflix?

Coronavirus warning saps confidence in ITV

Helal Miah, investment research analyst at The Share Centre, said shareholders have dropped ITV’s stock over concerns on how low advertising revenue could drop.

“Amid expectations that consumers will put off travelling, travel companies have deferred or cancelled advertising spending with guidance that for April alone total advertising revenues could be 10 per cent lower than prior comparisons,” he said.

“This is naturally sapping confidence in a stock that faces the challenges of online rivals and the weaker conditions in the UK and global economic environment.

“Its transformation to a digital broadcaster and content provider continues as it reported a 13 per cent increase in streaming demand and its newly launched BritBox services on track.”

Broadcasters bet on Britbox

The figures mark the first set of full-year results since the launch of Britbox, the joint streaming service from ITV and the BBC.

The firms yesterday named Spitting Image as their first original commission for the platform, which will return to British screens for the first time in 24 years.

ITV today said that Britbox was “on plan” since its UK launch in November. The service now has more than 1m subscribers in the US, although it is not clear how successful uptake has been in its home nation.

The broadcaster said Channel 4 would be added to the platform in the spring, with Film 4 set to join later in the year. Britbox will also be launched in Australia this year, with other international markets in the pipeline.

In addition to its streaming service, ITV has doubled down its focus on its catch-up service ITV Hub in a bid to offset the decline in traditional TV advertising.

The company’s online viewing hours rose 13 per cent over the year, while registered user accounts rose to 30.8m.

“UK subscriptions to online services have now overtaken pay TV subscriptions for the first time, and online ad revenues continue to grow at a significant pace,” said Kate Rowlinson, chief executive of Mediacom UK.

“But the arrival of 5G will make it easier to deliver content to viewers on the move, and as access to smart TVs grow, ITV must look at creating content which can leverage dual screen habits and programmatic advertising, or risk losing out to its more agile competitors. Fundamentally, however, viewers will only invest in services if the time and cost is outweighed by awe-inspiring, emotive and unmissable content.”

What ITV said

Chief executive Carolyn McCall said:

“Thanks to the hard work of our teams across the business, our full year results have come in ahead of expectations helped by revenue growth in the second half of the year in ITV Studios, advertising and online.

“We are making good progress in each area of our strategy and our investments in data, technology, online and in streaming will enable ITV to be a sustainable, diversified and structurally sound digital media and entertainment business.”