ITV bemoans lost ad revenue

Broadcaster ITV (ITV) was slow to embrace streaming – but the market's reaction to its interim results proves that it’s better to be a laggard than to forgo the race entirely.

While companies such as Netflix (US:NFLX) enticed scores of viewers with an on-demand offering, ITV long seemed content to stick with TV’s so-called ‘linear’ format. That all changed when it launched streaming service ITVX late last year. The division drove a 24 per cent increase in digital revenue across the first six months of 2023. ITV has already declared the platform a success compared to its predecessor, ITV Hub, with monthly active users up 29 per cent and total streaming hours increasing 33 per cent. 

However, success in the digital age hasn’t come cheap – with capital investment in ITVX contributing to a 52 per cent drop-off in ITV’s Ebita (its preferred measure of profitability). A predictable decline in revenue from linear advertising also contributed to the lacklustre result. 

On a call with reporters, ITV chief executive Dame Carolyn McCall said that the broadcaster was currently enduring the “worst advertising recession” since the global financial crisis. 

Mercifully, the group is not wholly dependent on ad revenue to drive earnings. Its television production arm, ITV Studios, creates and sells programmes to other networks. This has proven to be a reasonably lucrative enterprise, with the division’s revenue growing 8 per cent in the first half reaching £1bn for the first time.

Providing it can claw itself out of its advertising deficit, and can convince investors of the worth of its studios division, ITV’s medium-term outlook is fairly bright. With shares trading at just 8.4 times projected full-year earnings, we think it’s worth taking a chance. Buy.

Last IC view: Buy, 86p, 2 March 2023