ITV’s new five-year plan places too much emphasis on digital and online, and risks underselling the potential
of core product.
Adam Crozier, ITV’s new chief executive, unveiled the broadcaster’s latest five-year plan at its strategy review with the City last week. Much of the plan sounds sensible – including the launch of new digital channels, monetising its content arm and planning a greater reliance on online revenues. But Charles Allen and Michael Grade each had similar aspirations on digital and production, without being able to turn ITV around.
For me, there are some curious inconsistencies behind the rhetoric.
For example, we all understand what ITV chairman Archie Norman meant when he described ITV’s problem: “Free-to-air advertising is probably in long-term decline, and yet we as a business remain substantially dependent on it.” This strikes a chord with all media owners. Yet, in the very same results presentation, the management was celebrating a robust rebound in traditional advertising which rose by 18% in the first half of this year (yes, 18%; frightening to think what growth rates might be without a recession). So, it would seem the short-term opportunity in ad revenue recovery is huge and arguably far more important to ITV’s immediate health (and indeed the success of the new management team) than any longer term slower changes.
Second, while ad revenue was rising in healthy double digits, studio revenues were down 14%, largely reflecting the absence of international productions of shows like I’m A Celebrity, Get Me Out Of Here!.
So, a strategy built around production growth to offset traditional revenue decline starts with the momentum for both pointing firmly in opposite directions.
This is at the heart of ITV’s dilemma. Traditional ad revenues of £1bn dwarf production revenues by a factor of 4:1, while online revenues at £12m represent loose change. So, even if managing director of online and interactive Fru Hazlitt, who is better qualified than anyone, boosts online revenues 10-fold in five years, they’d still only be £100m and less than 10% of the total. So, Crozier’s ambition to have a 50:50 revenue split between traditional advertising and other revenues seems fanciful, at least across the term of this plan.
More intriguingly, to me, I’m not sure this matters one jot anyway.
I just don’t buy the politically correct premise that “traditional advertising is in inexorable longterm decline”. This is all about how you reinvent the product and proposition to advertisers, who are still willing to spend and who still demand scale.
The new five-year plan would seem woefully to undersell the potential in the core broadcasting product for the long term. The City might be seduced by a presentation that aspires to a digital revolution to change revenues overnight, but it seems to me that much more potential lies in a fundamental reinvention of the core product.
First off, broadcast linear media like TV (and radio when you look at the record Rajar results for last week) continue to deliver the mass audiences that advertisers love, and clients are continuing to invest for the long-term health of their brands. On the same day as the ITV presentation, Procter & Gamble confirmed that the world’s biggest advertiser had increased ad spending by more than $1bn in the past year, to $8.6bn.
So, I just don’t buy the politically correct premise that “traditional advertising is in inexorable long-term decline”. This is all about how you reinvent the product and proposition to advertisers, who are still willing to spend and who still demand scale. Either TV reinvents the core product or advertisers will find scale elsewhere (ironically P&G announced its Olympic deal at the same time). However, there is scant evidence to suggest that consumers will pay enough for content online to recover the traditional revenues generated by the major advertisers. Just ask the music industry.
Will this reinvention happen – well, yes, if it has company focus and attention.
This reinvention will be helped by the second longer term wind in ITV’s sails: deregulation. Ofcom has begun to indicate a longer term loosening on some of the constraints on TV airtime selling: a more open approach to product placement has been followed by a relaxation in ad minutes.
Neither are game changers for now, but one will facilitate a more creative discussion with advertisers about brands and editorial product. And the other will enable a change to yields, especially when ITV negotiates its way around an exit from the CRR mechanism in exchange for the merger of Carlton and Granada. As the coalition government relaxes cross-media ownership laws and when News International has full control of The Sun, The Times and BSkyB, it seems hard to see why ITV will remain obliged to work under CRR, a decade or so after the merger of Carlton and Granada. The relaxation of cross-media ownership laws leads inevitably to the redefinition of media markets.
Given this, my instinct is that scale, content reinvention and deregulation will actually enable ITV to reinvent its core product and
grow its core revenues. This is much more in tune with the philosophy of ITV’s trade marketing body Thinkbox – which won’t thank its major shareholder for encouraging a view among advertiser or TV media owners that a 50:50 split between traditional TV and other revenues is acceptable.
So, however well online and production develop their own corners, my hunch is revenues will remain about 70-30 in favour of traditional advertising even in the most optimistic digital scenarios. That will be just fine as revenues will be up overall. The real issue for ITV is the extent to which it takes its eye off the ball of super-serving its traditional customer base, in search of that mythical pot of gold at the end of the digital rainbow.
Andrew Harrison is chief executive of the RadioCentre. You can contact him at email@example.com