DECLINE IN ITV REVENUES

ITV expected to report first decline in ad revenues for 18 months
ITV advertising revenues in May and June expected to have dropped by 7% and 20% respectively – the first fall since November 2009

Some analysts question whether ITV chief Adam Crozier has used his first year wisely to build for the future. Photograph Justin Williams/ Rex Features
Mark Sweney
The Guardian, Sun 8 May 2011 18.09 BST
Adam Crozier's first year at ITV has had something of an extended honeymoon feel to it thanks to the remarkable recovery in the TV advertising market. However, reality will bite on Wednesday when he announces that the broadcaster is set to report its first fall in ad revenue in 18 months.
Crozier revealed bumper results for 2010 in March, fuelled almost entirely by an outstanding market-beating TV ad sales performance: up 16% year-on-year. ITV's share price flourished this year, reaching four-year highs and it returned to the blue-chip firms of the FTSE 100 this spring – ITV had dropped out in 2008 with losses of £2.7bn.
However, ITV's trading update on Wednesday this week will not be so rosy. The first quarter is expected to look healthy, with TV ad revenues likely to be up about 12% year-on-year and April up about 6%. But May and June are likely to be down at least 7% and 20% respectively – ITV's first revenue fall since November 2009 .
The market has responded warily to reports of a tough summer with ITV's share price falling 25%, to about 72p, since the after-glow of ITV's bumper results pushed it to a three-year high of 95p. Nevertheless, UBS analyst Tamsin Garrity believes that last year's World Cup was going to be a tough act to follow. "What did anyone expect after TV advertising last June leapt more than 40% during the World Cup, an amazing feat by the sales team," she said. She pointed to a string of "catalyst-rich" positives including wiping out net debt, improving the credit rating and pension deficit position, the possible removal of advertising regulations governing ITV1 and next year's London Olympics for why the stock is well underpriced.
But before 2012 arrives, 2011 has to be endured. ITV has to contend with Simon Cowell's almost complete absence from Britain's Got Talent and, far more importantly, this year's X Factor. Viewing of this year's Got Talent is down 10% year-on-year, how much of this is due to the run of bank holidays and fine weather is not yet clear, a worrying erosion of audience but not enough to damage ITV's financial figures.
The recovery in TV advertising has given Crozier the breathing space to implement his five-year turnaround plan, space his embattled predecessors would have dearly loved, yet there is little evidence to date of a masterplan to fix ITV's fundamental problems. ITV remains reliant on cyclical TV advertising. The drive to establish a meaningful digital presence seems as distant as ever with online revenues last year an anaemic £28m of the total £1.77bn netted by the broadcasting and digital division. And ITV Studios, the maker of shows including Coronation Street and Come Dine With Me, went into reverse with revenues down 12.5% and earnings falling by 11%.
Crozier has made much of the need to revitalise the operation, pointing out that the division has not created a global entertainment hit since Dancing on Ice in 2006, and has bought in new talent and earmarked £12m to boost pilot projects. Yet there are those that want something more substantial, such as splashing some of ITV's £1bn cash pile on an acquisition of a production company. However, the chief executive has not warmed to the notion of snapping up All3Media, the heftily price-tagged maker of shows such as Skins and Shameless, and some believe he may look to make a number of smaller acquisitions or invest in a range of producers internationally.
The lack of progress, though, has left analysts with nagging doubts. "The slowdown is likely to shift the focus back to longer term structural pressures with upside increasingly contingent on management's ability to deliver its turnaround strategy," said Daniel Kerven, of Bank of America Merrill Lynch. Crozier has had time to play with since he arrived, but the question is whether he has used his first year wisely to build for the future.


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