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The crumbling ITV pillar

Robert Peston | 08:08 UK time, Wednesday, 6 August 2008

The most important announcement by ITV today is that it has halved its interim dividend to 0.675p. The painful cut is the ITV board shouting that life is tough and expected to become tougher.

Michael GradeBut what was perhaps more shocking - but only because of its symbolism - was to hear Michael Grade, ITV's chairman, talking this morning on Today with complete equanimity about the possibility of losing its special position as a licensed broadcaster.

The costs of living up to its obligations as the leading licensed commercial broadcaster were too financially onerous, he said, such that ITV wouldn't suffer too much if it became just another digital channel, providing less of the public-service broadcasting that once gave so much of its original definition.

He may be stating the obvious - but it was strangely upsetting to hear.

In urging Ofcom to lessen the regulatory burden, Michael Grade is no longer playing it in a nuanced way: "What is at stake is ITV's position as one of the three pillars of UK broadcasting, alongside the BBC and BSkyB", he says.

Multi-channel competition against ITV has been a nightmare for this founder of commercial broadcasting for years. What makes this nightmare almost unbearable is the economic slowdown we're all experiencing - manifest in ITV's expectation that its net TV advertising revenue will be 20% lower in September.

Michael Grade, ITV's chairman, is being realistic about the challenges. So a target to grow revenues from the sale of its programmes and content around the world has been cut by 20%, and it is now hoping to increase online revenues to £150m by 2012, two years later than planned.

All that said, the figures for the first half of the year don't look too bad in the circumstances. Group revenue is flat at just over £1bn. Pre tax profits - excluding an enormous impairment charge - were down 28% to £91m.

And Grade rightly takes pride that ITV's viewing share is up 2.5% and net advertising revenue for all its channels increased a smidgeon (though the revenue of ITV 1 fell 5.1%).

As for that impairment charge of £1.6bn, that's simply the unavoidable recognition that the businesses brought together to create ITV in 2000 and 2004 are worth a great deal less now than they were.

So cost-cutting has become the order of the day: there's a new goal of saving a further £35m a year by 2010. And the future for this totemic business looks uncertain - not least because one of these days BSkyB will probably be forced to sell a stake of more than 10% in a broadcaster that's in danger of being categorised as the media soap opera's battered victim.

Comments

  • Comment number 1.

    I'm surprised ITV are still in business. I only have 5 terestrial channels (because digital broadcast on a totally different frequency in my area and even if I did buy a new aerial I probably couldn't get a decent picture because of local geography) and still go weeks without ever watching ITV. The constant diet of crummy soaps (and even the Bill which I once quite liked has turned into a crummy soap) and reality shows has turned it into lowest common denominator telly.

    The BBC should take notice and stop copying its failing rival.

  • Comment number 2.

    What are these Shares actually worth ?

    Are they like some of the Banks, a chance to buy pounds for fifty pence ?

    Or are they overvalued by the Market ?

    Caveat Emptor seems to rule today !

  • Comment number 3.

    How loaded up with Debt is ITV ?

    If their advertising revenue is falling that could be a big problem.

  • Comment number 4.

    ITV will suffer further now that many restrictions on how often adverts can be shown have been dropped. Initially, there will be be a boost as advertisers see advantages, but as viewers suffer ad-overload they will increasingly record programmes and skip adverts - as I already do.
    Advertisers will quickly realise that their expensive creations are having less effect and advertising revenue will fall.
    Dark times ahead for ad-funded TV which is why Sky stopped frre to air services many years back and went for subscription based services.

  • Comment number 5.

    Michael Grade on Today (Radio 4) implied that the public service obligation was hindering ITV's ability to show as many adverts an hour as it wished. Whilst this may be so in law it is my opinion that if ITV was ever to screen as many adverts as certain foreign broadcasters they would see their viewing figures (and hence the advertising rates) fall off a cliff.

    Are there any media studies out there that either confirm or refute my feelings?

    As to how successful Sky will be in the future now that a period of economic stricture is here we must wait and see! my guess is that if the choice is food and light and heat or Sky, the Sky service will be terminated and there will be a move to Freesat / Freeview. It seems to me that the BBC/ITV Freesat service has arrived at a fortunate economic time.

  • Comment number 6.

    No 4 Sky Three can be received with just a Freeview box.

  • Comment number 7.

    What has been missed by this piece is that it is not only ITV suffering, but all broadcasters are seeing a drop in their revenues.
    ITV is also still the only place across the entire commercial network where advertisers are guaranteed audiences in the mid to late millions.

    The point about being allowed to run more adverts in an hour is also a moot point, as ITV would never be stupid enough to alienate its already dwindling audience by going for the quick buck option. What they will do is be allowed to move breaks around so that they can maximise their inventory.
    If you think that this is going to lead to an influx of American style breaks then you'll be glad to hear that this won't be the case.

  • Comment number 8.

    As a viewer, if ITV disappeared from the airwaves, I wouldn't miss it.

    Its saving graces are few and far between. Everyone has their own prefered content, but I could only identify two or three programmes in any calendar year of interest.

    Michael Grade appears to want a reboot of the ITV franchise in much the same way as Hollywood has taken to doing with its stale offerings.

    The current ITV model does fit uneasily with the digital age and subscriptions services. Inevitably it will slide further towards the lowest common denominator and become just more noise in the digital spectrum.

    The three basic models of delivery - subcription, public funding and advertising led will continue to exist in the digital age. It seems to me that increasingly all will be pressured by the proliferation of digital services towards the lowest common denominator. All will try to resist this in their own way, but whatever the outcome for ITV, I only hope it doesn't weaken the BBC position with regards to the license fee.

    The BBC is the gold standard and the key if subscription and advertising models are not to succumb to digital pressure. ITV needs to remould itself, but needs a strong BBC as a yardstick.


  • Comment number 9.

    You can bet your bottom dollar that ITV's "cost cutting" exercise won't include the salaries and bonuses of the Board members.

  • Comment number 10.

    ITV's difficulties show how difficult terrestrial broadcasting can be. However, at least they are still showing a profit. The problem of the BBC is a lot worse because the move from terrestrial erodes the point of its entire existence as an institution.

  • Comment number 11.

    "As for that impairment charge of £1.6bn, that's simply the unavoidable recognition that the businesses brought together to create ITV in 2000 and 2004 are worth a great deal less now than they were"

    Or, equally simply, that in 2000 and 2004 the businesses weren't worth as much as they were made out to be.

    We have no chance of making things any better unless we learn that overvaluing the present, undercosting the future is the most basic and powerful force responsible for the financial turmoil that we are experiencing.

  • Comment number 12.

    Some good points here (1, 3, 4 and 5) especially with regard to the ads. Anyone who takes a casual glance at much of the abysmal stuff in multichannel hell will understand that more ads equals viewer fatigue.

  • Comment number 13.

    ITV has been in decline for years.
    IMHO it started with Thatcher's bright idea of auctioning off the franchises to the likes of Michael Green. That was the start of profit before programme quality.

    The advent of digital PVR's will accelerate the death of commercial spot advertising.

    Personally, I record all the programmes I want to watch (with the exception of live sport) and haven't watched a commercial for years.

  • Comment number 14.

    What this really tells us is that actually competition isn't neccessarily always a good thing.

  • Comment number 15.

    Are we starting to see the end of the over-waged media?

    Working at the productive end of the economy I have been concerned for a number of years as to the difference between media salaries and those who produce the actual value on which all this very ample superstructure sits.

    No doubt there are very gifted people in the media who can command salaries of a global substance but given the dross the British public is served up as entertainment these days they do not seem to work here very often.

    It would appear the credit crunch is exposing the untalented, overpaid bums-on-seats.

  • Comment number 16.

    The futures going to be subscription models - you pay for the content you want - and before long the sports authorities, film studios and foreign broadcasters will cotton-on to that.

    The likes of ITV, and BBC, should start positioning themselves for that now, otherwise they'll be screwed when all the sports, movies and imports get denied them.

    The government should commercialize the BBC (its sitting on a kings ransom of property, both physical and intellectual) with the licence fee being used as a grant for non-commercial ventures, allowing the BBC to take advantage of its position whilst ensuring its arts and educational requirements are ringfenced.

  • Comment number 17.

    No 6. Sky three is not a major revenue earner. Its programme content is very low cost and its real purpose is to showcase sky.

    No 7. I agree with you in part, but the American model has been arrived at because of competition that is roughly mirrored over here. Without restrictions, commercial pressure will drive the model here down the same route.

    Personally, I'd prefer all channels to be subscription only and each owned by a separate company. Each channel would only survive if its quality/price ratio was better than the competition. We'd soon have many less channels but probably far better quality.

  • Comment number 18.

    We haven't watched TV for any length of time for 10 years or so. ITV went first, very closely followed by C4.

    The terrestrial channels haven't realised that their captive audiences have wandered away, fed with too many years of crass programming and advertising, with a few decent bits in between.

    We look at the listings on a Sunday morning when the papers come, and it is almost a rarity when something turns up that we might watch, and even rarer if there is something that we "must" watch.

    The internet has taken a lot of their market, with more choice and less visual advertising. It is a fact of life, and the broadcasters are going to have to deal with it.

    We do have Freeview, but the programming doesn't become better for being digital!

    Peter

  • Comment number 19.

    I wasn't aware that ITV was still going. I must press button 3 on my remote and see what's on...
    ... oh that's right, a lot of old tosh.

    Mind you BBC primetime isn't much better... Bonekickers and Andrew Lloyd-Webber promo vehicles anyone?

  • Comment number 20.

    #16 Frank

    "you pay for the content you want"

    Oh, if only you could! At the present time you get a bundle of things you don't want along with the one you do want.

    Don't fool yourself subscription TV is just a rip off that allows the broadcaster to peddle hundreds of hours of dross along with the programme you actually want. The subscription model has given us multi-channel TV filled with rubbish - how is that better than advertising or license fee TV? At least buying a DVD lets you buy what you actually want!

  • Comment number 21.

    I appreciate that the goal of commercial TV companies is to get people to watch out of habit rather than out of choice, but is this, rather than any technical reason, why we haven't seen develop more of a library type system of selecting programmes to watch?

    Sky Plus, I know, goes some way towards this but by no means all the way. Let's say I develop an interest in a particular series, and I want to watch the previous episodes, why is it not possible for me to select from an archive, paying a price, obviously, for each programme I select. Take Brideshead Revisted, for example. With the new film, I should have thought there would be a good number of people who'd jump at the chance of seeing or re-seeing the acclaimed Granada production from 1981. Why instead do they have to put up with the off-chance that it will appear on UK Gold or the like?

    Isn't the structure of the Internet sufficient demonstration that every programme ever made can be stored in an archive that is instantly available. Is this actually the way the industry is going, or are commercial interests constantly putting obstacles in its way?

  • Comment number 22.

    I saw this piece on the News. However, whilst I am sure that Robert Peston is extremely talented and I have no problem with the content of his reports am I alone in finding his delivery extremely annoying because of the inflection in his voice?

  • Comment number 23.

    ITV continues to make poor programmes and baffling scheduling decisions and it's always something / someone else's fault. Cheap and gaudy gameshows, soporific drama and dreadful sports coverage are hardly recipes for success.

  • Comment number 24.

    The real question has got to be how much are people prepared to pay for Television programmes ?

    Right now for a top of the range satellite package (why?) someone could easily pay 50 pounds a month.

    And of course the licence fee as well.

    Better to go down to Woolies and buy a DVD !

    At least you get what you want when you want it.

  • Comment number 25.

    An article on this website says that the swap rates are down 1% since June.

    Also mentions Abbey has reduced its Mortgage rates again.

    Light at the end of the tunnel ?

  • Comment number 26.

    Internet services are really going to put the cat amongst the pigeons.
    In the not too distant future most will have a media centre in their home and will be able to puchase HD programmes from all over the world.
    If future programme producers start to sell direct we may find that we can buy programmes just like we download music today. Where that leaves advertisers no-one's sure.
    Product placement will become more prevalent, but would the public accept adverts in the middle of programmes? They do now in bundled subscription services, but if your DVD had adverts in the middle of a film would you still buy it? If they all had adverts what would Joe Public do then?

  • Comment number 27.

    Robert, where's the in-depth analysis of exactly what the implications are, should ITV ditch its PSB status? BBC Radio news has been trotting this story out every hour, on the hour throughout today as if we all implicitly understand what it means. What are the benefits to ITV, what are the consequences?

    I've been on the road all day and looking forward to getting home and finding some sort of explanation on this website, but so far, no joy.

  • Comment number 28.

    @20, John_from_Hendon

    You misunderstand, I'm not on about subscribing to channels, but to content.

    Virgins 'AnytimeTV' and Sky's 'multistart' are the forerunners, and more and better versions will come along.

    Channels' days are done - we're entering the age where content providers can pipe their shows direct to users, and this already being done illegally.

    I can wait 6 months to see the resolution to CSI:NY's cliffhanger on 5, or I can download it next month a few hours after it premieres in the states.

    I saw Heroes long before it hit these shores the same way.

    Once the revenue, advertising and fibre models are finalized we'll see such shows and movies being piped directly to the consumer via IPTV (Apple and Google are already working on these)

  • Comment number 29.

    Robert,

    It is sad that ITV is crumbling!

  • Comment number 30.

    These days I hardly ever find anything on the major 5 channels between 6 and 10 worth watching any more.

    Mostly I find that these programs like Casualty, Big Brother and Eastenders depict a side of Britain which I find abhorrent and have no interest in.

    I find the highly paid presenters vulgar and rude, so if these changes mean they are paid less then that's all to the good for me.

    I tend to watch Sky Sports where you know exactly what you are paying for, and BBC's excellent news analyses like Newsnight, plus Bloomberg for financial news.

    I suspect out of all the rubbish digital channels on offer, most people tend to watch just re-runs of decent comedies like Fawlty Towers, Dad's Army and Frasier.

  • Comment number 31.

    Michael Grade is no fool - he knows that ( just like Northern Rock) if the company is useless at its core activity it will be Nationalised.
    Darling could become the darling of ITV.

  • Comment number 32.

    #28 Frank

    There are fundamental technical issues with a 'global view anything when you want' via the Internet model as a replacement for broadcasting.

    The issue is the capacity of the (present and conceivable future) Internet to handle so much data. Broadcasting is so much more technologically efficient at delivering programmes to viewers.

    Just do the sums. SD TV even in its lowest quality version on Freeview and Sky needs a couple of megabits of bandwidth. HD needs about 5-10 times more at least if you want the quality (H264 is more efficient then MPEG2 but HD still needs far more data.)

    This is why all of the on-demand services via the Internet are such poor quality and indeed why so many satellite and freeview services suffer from artifacts (blocking etc.) You will I am sure have noticed the reduced quality of most of the pirated video on the web.

    Also note that BT is still refusing to put in any extra capacity in the form of fiber unless and until it gets a guarantee of making a reasonable return on the billions it will have to spend.

    We are, I think, stuck with broadcasting to receive our TV for decades to come. However I would have never expected viewers to put-up with the poor technical quality available today and I may be wrong and we will be prepared to put up with a few blotches dancing over the screen, instead of a a reasonably viewable image.

  • Comment number 33.

    ITV1 in particular is utter dross. Their newer channels ITV 2-4 often have films and re-runs on I'm happy to watch, but ITV1 is Soap, Soap, Reality Documentary, Soap, Reality Game Show, Nazi Interior Decorator Vets Sell Your Property, Soap

    The only good thing about ITV is the regional news and now they are planning to merge news coverage into 5 or 6 centres.

    They don't seem to have cottoned on that digital tv means more specialised channels and audiences and would be the idea platform for local programming, instead they're heading the other way

  • Comment number 34.

    How does Michael Grade still manage to have a job in television?

    "Michael Grade is no fool". Hmm, well, not to sound too simplistic, but as the man who axed Dr Who when he was at the BBC, I beg to differ.

    He then gets hired by ITV, who mysteriously find themselves falling into the abyss shortly afterwards.

    What's his next ambition? To go to BSkyB and dismantle their News services?

  • Comment number 35.

    I think for a lot of people ITV is already a dead. It just has not realised it yet.

    All I watch on ITV is F1 (and they've lost that to the BBC next year) and Kingdom. That's it.

    The once proud News service has been reduced to a token force. Its laughable 24 News channel on sky had more 1hr repeats that 'All fools and Horses' on UK Gold!

    We only have two real UK news broadcasters now, the BBC and Sky, and to be honest I never thought I would ever be saying that about Sky. But sky, maybe because Murdock is a newspaper man, knows the News is your bedrock. Even if the folk watching only now and again dip their toe in to see what's happening.

    Where as the BBC has had an unjust knife put through it during the evil midgets years in control and has come out in parts worse, and occasionally better, it has worked to survive and be the premier broadcaster. Sky has worked hard to become the new ITV (and it has done it so successfully).

    ITV has just sat their and let the accounts make decisions that look good on paper, while destroying its very heart in the name of a bigger profit .

    The regional news centres were its corner stone in making people believe their ITV company was THEIR local tv company while the local BBC news studios were working on a shoestring operation.
    But as the BBC worked to improve theirs, to save money local ITV studios are closed, and its productions are made in a few London based locations. People see this, it's no longer THEIR ITV.

    ITV has forgotten who its audience is and where they are.

 

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