Free-to-air broadcaster ITV (ITV) has created something of a splash with plans for a subscription-based streaming service BritBox in partnership with the BBC in the UK. But investors appear to have focused instead on downbeat advertising revenue guidance.
The shares are 1.8% lower at 129p as the company says total ad revenue for the first four months of 2019 will be down by between 3% and 4%.
Things are unlikely to improve in the near term either with beating last summer’s advertising performance likely to be tough given there is no football World Cup to provide the usual boost.
BUDDYING UP WITH THE BEEB
No wonder chief executive Carolyn McCall is keen to pivot away from the reliance on this revenue stream with the BritBox UK venture. Helpfully on this front, the production business ITV Studios performed well in 2018 with revenue up 6%.
There were some other positives in the full year numbers too, earnings per share was slightly ahead of the 15p consensus forecast at 15.4p and total advertising revenue was actually up 1% against the ‘broadly flat’ performance that was guided for.
AJ Bell investment director Russ Mould says: ‘Traditional rivals, BBC and ITV are teaming up like characters from a buddy cop movie to take on the likes of Netflix and Amazon with a UK subscription-based streaming service BritBox.
‘The joint venture has already enjoyed a successful pilot in the US and given the wealth of content both parties bring to the table you can see it having a decent pull for viewers. However, the regulators still need to sign off on the plan - with the BBC’s status as a public service broadcaster a possible sticking point.’
Mould points out that the platform will require significant investment, particularly if the partners are to follow through on plans to create new content for the Britbox platform.
‘Spending by Netflix on original content is projected in some quarters to hit $15bn in 2019,’ says Mould, whereas ITV has set aside £25m this year rising to £40m in 2020.
WHAT DO THE ANALYSTS THINK
Liberum comments: ‘What the full year results show is that, despite the pressures on the advertising market caused by Brexit, ITV is delivering on its strategy.
Liberum notes that audience figures show ITV is outperforming the wider television market, achieving audience share gains but also seeing ‘absolute viewing’ go up. In its view this demonstrates ‘that ITV’s ability to deliver a mass market audience is not diminishing’.
‘Longer-term, the SVOD (subscription video on-demand) announcement should give ITV (and the BBC) a powerful weapon to compete with Netflix and other SVOD players - in the US, Britbox has been a success, with more than 500,000 customers and annualised revenues in the circa $50m estimated range, and we think there is plenty of appetite for a similar UK service,’ he adds.
Shore Capital analyst Roddy Davidson says: ‘We are encouraged by last year’s robust performance against a challenging market backdrop. It is also good to see the on-going self-help taking place and the potential launch of a streaming venture.
‘More broadly we remain positive on ITV’s medium-term attractions which include: an unrivalled ability to deliver a mass-market audience via a highly trusted medium; the growing commercial value of its content portfolio; strong cash-flow, and; its value as a strategic asset within a consolidating industry.’
