ITV to invest heavily in streaming

ITV (ITV) is facing the same challenges as every other streaming company: intense competition for people’s attention and the high cost of creating popular content. The plan is to launch subscription streaming service ITVX in the fourth quarter, which will be the centrepiece of its strategy to double digital revenue growth to £750mn by 2026.

This plan will require a lot of investment, though. Total content investment for the whole business will be around £1.23bn in 2022 before rising to £1.35bn in 2023 and will remain at that level going forward. Total monthly digital users jumped 18 per cent to 9.6mn last year and the hope is to almost double this figure by 2026.

Advertising performed well, up 24 per cent to a record amount. However, there will be some tough comparators for next year because of the uplift from the Euro 2020 football tournament. Advertising could also face a potential headwind as rising inflation eats into clients’ budgets. Marketing is often one of the first expense cut by businesses – especially on traditional TV where it is not possible to measure the return on the investment.

Pessimists won't like ITV's big investment plan in response to increased competition from streaming platforms such as Netflix and Disney Plus that invest billions in content. Total ITV viewing fell 9 per cent to 15.1bn hours even with the Euro 2020 on during the summer.

Broker’s don’t hold out too much hope due to the high costs associated with the plan. Consensus EPS forecast of 15p in 2024 is down from 15.3p last year. However, given the 7.2 forward PE ratio, the concern seems to be priced in already. Hold.

Last IC View: Hold, 123p, 10 Nov 2021