ITV Studios was singled out for increasing revenue when it was ‘internal supply – money ITV was spending on itself
ITV’s results last week were unquestionably good and especially good for long-suffering shareholders. Revenues are up, costs are down, debt is paid down, cash is flowing and so are profits – Ebita £500m plus. Chairman Archie Norman and chief executive Adam Crozier – both complete outsiders to broadcasting and ITV, BBC take note – can justifiably take full credit for the company’s performance, which represents quite a turnaround in difficult economic conditions.
The strategy has been essentially the same as that pursued by their predecessors Charles Allen and Michael Grade – reduce ITV’s historic dependence on fickle TV advertising revenues by developing other revenue streams. That means developing online, on-demand, pay TV and, most importantly, the company’s content business ITV Studios. And, indeed, that is what Norman and Crozier claim to be doing with their “transformation” programme.
So much so that last week’s results were headlined “Delivering Growth Through Transformation”, with ITV Studios (ITVS) singled out for delivering a £100m increase in revenues, the lion’s share of the company’s overall increase in non-TV advertising revenue (or non-NAR revenue in the jargon) of £114m. That leaves ITVS delivering what is counted as fully £712m of non-NAR revenue; which is presented as evidence that the strategic objective of weaning the company off TV advertising (which is flat at £1.5bn) is well under way.
However, while there is no doubt ITV is now better-run and more profitable, a closer look at the figures raises questions about whether the “transformation” has thus far had much to do with this improvement. The bulk of the increase in ITVS revenues (£58m of the £100m) is an increase in “internal supply”.
In other words it is money (£350m in total) ITV is spending on itself – ITV channels buying shows from ITVS. All of which is funded by TV advertising, which makes presenting it as “non-NAR” revenue quite a semantic stretch. Look closer still and you will see that £33m of that £58m increase is accounted for by one programme – ITV Daybreak – moving into ITVS from another part of the company. In effect the UK production division of ITV Studios, still by some margin the most significant, has increased its non-ITV production by just £5m. And that also means that the increase (from 55% to 58% in the past year) in the share of ITV commissioning accounted for by ITVS – a key measure for the success of the transformation strategy – could be accounted for almost entirely by the internal transfer of the Daybreak commission.
In one important sense, of course, the overall strategy will be served by more in-house commissioning – since these will be programmes and formats ITV owns and can exploit internationally. But that is a very long game indeed unless you have a global hit like Who Wants to Be a Millionaire? or Big Brother – and they are, by definition, rare.
There are more opportunities to go in-house as ITV looks to refresh Saturday evenings in the light of the gentle but probably significantratings decline of The X Factor and Britain’s Got Talent (both currently independent commissions not owned by ITV); while more long-running returnable drama – think Mr Selfridge doing well around the world – would add to ITV’s commercial strength. And international production too will shortly start to make a bigger contribution if recent acquisitions in Europe and the US pay off. Although in-house commissions that offer greater potential long-term returns internationally, but which might carry greater risk in terms of short-term schedule performance, will no doubt continue to be avoided by ratings conscious commissioners.
ITV is looking better than it has done at any time since the Granada/Carlton merger that created the company back in 2004, but a significant drop in TV advertising spend – which, against most market expectation, hasn’t happened in spite of the parlous state of the economy – would still spoil the shareholders’ long-awaited party.