INSIGHTanalysis: ITV Treads Water In Difficult Seas

In its Half Term Report 2003, Billetts analyses the performance of the commercial TV sector in the first six months of the year. ITV1 comes off particularly poorly with revenues down by more than 4% while the market as a whole showed a slight improvement. In June alone, revenue was down almost 17% but this can be partly attributed to difficult comparisons with last year when the schedule was dominated by the World Cup.

ITV1’s market share now stands at just over 51%, down from last year’s record low of 54% (see ITV Revenues Drop As Audiences Improve). This is despite the fact that increased investment in programming appeared to have paid dividends in terms of viewing figures. Despite the rising stock of cable and satellite, ITV1 was able to maintain its share of most audiences over the first six months of 2003.

However, closer analysis reveals that the best audience figures were seen in the early part of the year when the likes of Footballers Wives and I’m A Celebrity Get Me Out Of Here pulled in the viewers. By comparison, it has been a cold summer for ITV and Lehman Brothers predicts that advertising revenues will be down by 4.8% in Q3 and by 9% in Q4. Growth is not expected to return in earnest until the latter half of 2004.

ITV Advertising Revenue Forecasts
	Revenue (£m)	YoY Change (%)
Q1	469.4	4.5
Q2	366.9	-4.7
Q3	427.7	-4.8
Q4	356.9	-9.0
FY2003	1620.9	-3.3
Q1	469.4	0.0
Q2	367.6	0.2
Q3	449.1	5.0
Q4	374.7	5.0
FY2004	1660.9	2.5
Source: Lehman Brothers, July 2003

The merger effect Analysts at Morgan Stanley estimate that ITV advertising will fall by 5.0% in September and by 3.2% in the full year. Annual growth is expected to be no more than 2% over the next three years. Carlton and Granada say they can generate around £50 million in savings if they are allowed to merge their sales operations. However, even if this results in an increase in programming spend, experience suggests that there is no guarantee of a corresponding rise in revenues. The outcome of the Competition Commission inquiry into the proposed merger of Carlton and Granada will be made known on August 26.

Despite its troubles, ITV has proved that it can still deliver mass market audiences and Billetts points out thet one benefit for advertisers has been that ITV1 “was cheaper by over 10% across the majority of audiences” in the first half of 2003. The network also appears to be winning back younger viewers and Adults 16-34 impacts were more than Adults the six months to June.

Network executives can also take comfort from the performance of ITV2 which has seen audiences increase by 70% with extra coverage of I’m A Celebrity proving particularly popular.

Channel 4 and Five Channel 4 achieved its highest ever share of terrestrial advertising revenue in 2002 (see Channel 4 Returns To Profit After Heavy Losses) but the year was characterised by restructuring as the broadcaster sought to put its finances on an even keel. Although it continues to deliver niche young and upmarket audiences, Channel 4’s price premium has increased in the first six months of 2003 and Billetts claims that inconsistent scheduling and disappointing Saturday night audiences are a concern. Meanwhile, the digital entertainment offshoot E4 is struggling to hold on to viewers in the competitive multichannel market.

The news is better over at Five where revenues grew by 7% against a flat overall market. Peak time audiences are improving but the channel has an image problem given that its profile is now the oldest and most downmarket of all the major channels. Despite constant denials from the man himself, speculation has been rife that Rupert Murdoch is interested in acquiring Channel Five when media ownership regulations permit. To appease the House of Lords, a last minute clause was included in the recent Communications Bill, making provision for a special public interest test should a large media group come in for Five (see Government Ends Media Ownership Deadlock).

BSkyB BSkyB contiunes to go from strength to stength. Subscriptions topped 6.8 million in the last quarter and the satellite broadcaster is confident of reaching the target of 7 million by the end of the year (see BSkyB Results Beat Market Expectations As Subs Hit 6.8m). Billetts points out that first half revenues have been strong as a result of the 2002 performance and agency negotiations for 2003.

On the downside, audiences have been underwhelming particularly at Sky One where the schedule looks somewhat tired and viewer numbers are down 20% this year. However, Sky News is attracting quality viewers and the report implies that audience issues would be solved if Sky channels were to made available to Freeview customers.

The digital terrestrial television (DTT) service has been of the success stories of 2003 but Merrill Lynch claims that it attracts a significantly older customer profile than Sky and currently represents little threat to its market (see Freeview Success Should Not Hurt Sky, Says Merrill Lynch).

Outlook The first half of 2003 was a period of consolidation for the TV market and Billetts emphasises that while revenues were not good, they were at least level with last year. However, the industry is not yet out of the woods and with July and August well down on 2002, it is likely that TV revenue will be down for the rest of 2003. This could have an adverse effect on programming budgets as schedules become more changeable.