- ITV advertising revenue rose 29 per cent in the first half of 2021
- Google sales rose 69 per cent to $50.4bn in the three months to June
- Television and digital continue to thrive as the traditional advertising market is decimated
Advertisers looking to showcase their products and services to the widest possible audience are receiving mixed messages from the world’s biggest marketing platforms. ‘Redirect 20 per cent of your TV advertising budget to YouTube and we’ll increase your campaign reach by a quarter,’ claim the bosses at Alphabet (US: GOOGL), citing a recent survey from market stats firm Nielsen. But ‘keep investing in linear advertising which offers access the world’s biggest audiences,’ say executives at ITV (ITV) - unsurprisingly.
For now, advertisers seem to be sticking with both options. Alphabet and ITV have both posted exceptionally strong numbers for the three and six months to June 2021 as the post-Covid commercial bounce back has hit full swing. Google advertising revenues rose 69 per cent to $50.4bn (£36.2bn) in the second quarter of 2021, including an 84 per cent increase in YouTube sales. At ITV total advertising revenue rose 29 per cent to £866m in the first half of the year, including a 55 per cent increase in sales from video on demand services.
Importantly, both companies have recouped sales lost in 2020. Google’s quarterly ads revenues are up 55 per cent on the same period of 2019. ITV’s media and entertainment business delivered 4 per cent growth over two years.
Resilience in the face of challenges
Television advertising is faring far better than many expected, especially in the UK. In 2021, total TV ads spending is expected to rise to £4.11bn, from £3.95 two years ago. That helps explain ITV’s resilience and (perhaps) investors’ confidence in the company’s continued momentum: shares are up 101 per cent in the last year, compared with an 80 per cent increase at Alphabet and 21 per cent rise in the FTSE All Share.
It’s a silver lining for the traditional, linear advertising space (ads which play for a predetermined amount of time on a particular medium) which has been ravaged by the arrival of targeted ads which play alongside other forms of content without disrupting them (a service dominated by Google). The demolition of print, physical and cinema marketing accelerated in 2020 as the world went into lockdown, and looks unlikely to make a comeback.
That trend has played out in recent numbers from ITV’s British peers in the print media space. Reach (RCH) - the owner of a group of newspapers including the Mirror and Star - reported a 4.3 per cent decline in advertising revenues in the six months to June 2021 and a 34 per cent decline over the same period over two years. Advertising revenues at Daily Mail owner DMGT (DMGT) were down 4 per cent on an underlying basis in the nine months to June 2021 compared with the same period in 2020, which were themselves down 12 per cent on the prior year.
But while TV is defying the odds on this side of the pond, a different story is playing out in the US where TV advertising spending is expected to drop from $65.3bn last year to $62.7bn in 2021. The US market has been disrupted by the arrival of streaming services far quicker than British broadcasters have, but it is surely only a matter of time before the likes of Netflix, Amazon Prime, Disney Plus, Apple TV+, Peacock, Hulu et al. poach enough eyeballs to diminish the allure of traditional TV advertising in Britain.
Without the volumes of TV users required, companies have plenty of other options for advertising. “Retailers continue to build their digital presence to drive both online and offline sales,” said Philipp Schindler, chief business officer at Google, “and we’re helping them do it.”
Don’t write off ITV
But ITV is clearly aware of the challenges it faces in maintaining advertising revenue (which contributed 56 per cent of external sales in the first half of 2020). It has long pursued a greater proportion of revenues from its studios division and has spent a lot of time investing in its own content and acquiring new production houses. Its roster of programming is now impressive.
More recently, a great deal of investment has been directed towards the ITV hub and the company’s new tech powered TV advertising service Planet V. And it is here that the company poses a more legitimate challenge to the encroaching dominance of Alphabet. Planet V and the ITV Hub offer targeting like Google but without the same level of competition for ads slots. Planet V is signing up other broadcasters, meaning ads can sit alongside a broad range of content not just that delivered by ITV.
Whether it justifies a return to a market capitalisation of £4.55bn for ITV is hard to say, but with shares trading on just 10 times forecast earnings there seems to be more space to grow. If nothing else, its combination of original content and data management surely makes ITV a takeover target.
As for Alphabet, reliance on advertising revenue can hardly be used as a negative investment point, when the digital ads space is accelerating and Google is capturing a growing slice of the pie. And the cash delivered by the ads business is being relentlessly deployed into new exciting ventures. Buy Alphabet (if you can afford it at £2716 per share) and ITV at 113p per share for less expensive exposure into the digital ads market.
