Free to air commercial television resilient in austere times

Raymond Snoddy says ITV and RTL’s latest statements give testimony to the enduring power of free to air commercial television and show that the media world is working in the way it should in difficult times…

What happens to commercial broadcasters when the Euro is in crisis across Europe and the UK is in double dip recession? Not much is the answer.

In fact both ITV and RTL, the perfect dipstick for the media economies of continental Europe, came out today with statements revealing growth in advertising revenue despite everything.

How come? At the most basic level this is a testimony to the enduring power of free to air commercial television. But also, intriguingly, it suggests that the media world is working, at least in the UK, in exactly the way marketing theorists would suggest it should in difficult times.

Consumer demand is down so companies should indeed continue advertising to try to stimulate sales. There is also considerable accumulated evidence that companies which continue – apparently irrationally – to advertise their brands throughout a recession benefit disproportionately when better times return. Cutting marketing budgets has consequences.

At least to some extent corporations are avoiding the worst short-termism – the urge to slash marketing budgets, cut costs.

If only Governments, the UK Government in particular, could get a similar message that reducing demand too abruptly leads to a dangerous downward spiral in consumer confidence, further undermining demand.

For the first time this week you could even hear voices from the financial markets suggesting that front-loading deficit cuts in the way that has happened was neither sought nor wise. We never expected it to be this extreme some say.

Of the two broadcaster statements RTL’s is the more interesting because the company is present in just about every Euro market of significance, and beyond.

Television companies are hardly immune to the economic climate and RTL has plenty of harsh climates to choose from. Therefore advertising revenues in the first quarter “reflected the state of the national economies as they navigate through the Euro crisis” – or not as the case may be.

The German advertising market grew significantly and France was up slightly year on year. The Netherlands and Belgium were down while in Southern and Eastern Europe – RTL cannot even bring itself to name the countries – the markets “continued to decline strongly”.

But overall RTL revenues rose by 6.3% while underlying profits were stable and the underlying profit margin was a respectable 14.4%.

Apart from the strong performance in Germany, Fremantle – RTL’s London-based production arm – gets a special positive mention.

There is also confirmation that Cecile Frot-Coutaz will formally take over as chief executive of Freemantle on 1 July, succeeding Tony Cohen “who will leave the company to focus on his non-executive work”. And alas you don’t have to be a cryptologist to work out what that statement means.

If RTL’s position is interesting because of its exposure to countries that could yet default or have to retire hurt from the Euro, ITV is doing considerably better than expected.

Analysts were today rating the British broadcaster a “buy” after ITV said ad revenues could be up by as much as 17% in June. Liberum Capital said 140p a share would represent fair value – compared with the present 85p.

Of course the usual caveats have to be acknowledged. There is the perennial problem of easy comparatives year-on-year and June is going to be a very special month with the Royal Jubilee and the other likely Euro crisis, the 2012 football tournament. The approaching Olympics shouldn’t hinder either in terms of mood, though that is a BBC occasion.

Overall ITV is expecting a 7% lift in advertising revenue in the second quarter following a 1% fall in the first – giving a first half batting average of a rise of around 3% compared with last year. Many UK companies exposed directly or indirectly to consumer demand would settle for such an outcome.

In advertising terms ITV is out-performing the market with Channel 4 likely to be squeezed as a result. Increasingly though ITV is about more than advertising revenue, which has a tendency to go up and down with the normal economic cycle – though not in sync.

When chief executive Adam Crozier unveiled his five-year ‘Transformation Plan’ to reduce dependence on TV advertising, move to digital and ramp up ITV Studios, the cognoscenti smiled knowingly. Wasn’t this the five-year plan of Charles Allen and Michael Grade, dusted down and re-introduced to the market?

Just maybe Crozier is getting closer to actually realising at least part of those perfectly rational and sensible plans.

ITV Studios has been under-performing in the international market despite the advantage of making many of the broadcaster’s big in-house shows. Now total non-NAR revenues are up £87 million – a 43% rise – to £290 million, with most of the growth driven by the studio.

In fact sales abroad of programmes like Titanic helped to take the revenues of ITV Studios up to £212 million, an increase of 61%. This may include a little one-off sleight of hand with Daybreak becoming an in-house production but overall the performance must represent a large step in the right direction.

ITV also said today that viewing of shows online and through on-demand platforms grew by 24% year-on-year to 110 million views. Analysts suggest that online revenues have grown by £7 million or nearly 10% to £78 million in the first quarter. A solid base to cope with what economists fear will be five years of rising unemployment in the UK outside the South East.

The potential upside could be very considerable if the Coalition Government decide they do not want to be voted out of office as an Austerity Government – and decide to stimulate growth after all.