ITV position set to worsen, say analysts

UK commercial broadcaster ITV’s performance looks set to worsen as a result of a Brexit-related economic slowdown and increased costs related to next year’s football World Cup, according to an analysis by Berenberg.

According to analysts Sarah Simon and Alastair Reid, ITV is likely to face a continued deterioration in the media buyer outlook for the UK TV advertising market.

Challenging the view that the broadcaster’s prospects for the second half of the year are stronger than the first four months, for which ITV management has predicted a 7% decline in advertising, Berenberg pointed to  “the tough comparison with last year’s football-boosted ad market” as well as continued nervousness following the triggering of Article 50 of the Lisbon Treaty.

ITV has diversified its revenue streams under CEO Adam Crozier (pictured), with much more emphasis now on its international production and distribution business, ITV Studios, whose revenue grew to nearly £1.4 billion (US$1.7 billion) in 2016.

Also on the positive side, Berenberg noted that ITV’s management is reducing programming expenditure this year by about £25 million, helped by the lack of big sports events.

However, next year ITV will be broadcasting the football world cup in partnership with the BBC, on the basis of a deal signed in 2014, “when the market was showing robust growth, and Brexit was not even a potential cloud in the sky”.

Postulating that these rights were negotiated “for a higher price than those for the 2014 tournament in Brazil”, the analysts expect a significant increase in programming costs for ITV next year at a time when the ad market will still be undergoing negative growth.

Finally, Berenberg’s analysts said they remained sceptical that ITV would be able to gain some cash through levying retransmission fees, despite changes in the offing that could enable it to do so in theory.

While the forthcoming Digital Economy bill, set to pass by the summer, will lift the “must offer” status of the main ITV channel, meaning that ITV will be able to negotiate commercial terms with Virgin Media, the analysts point out that the channel is “distributed unencrypted via satellite and via DTT, which means that a simple USB DTT connector could allow Virgin consumers to continue watching ITV even if the cable operator will not pay to re-distribute the signal over its network”.

Any deal with Sky on retransmission would meanwhile require separate European legislative moves, with further uncertainty surrounding this because of Brexit.