ITV returns to profit thanks to increased advertising

ITV has reported it made a pre-tax profit of £25m in 2009, thanks largely to thanks to cost-cutting work and increasing its share of a declining television advertising market.

The broadcaster returned to profit following a turbulent 2008 when it reported a loss of £2.7bn. It says that while its advertising revenues for the year were down 9%, the wider market fell by 11%. As a result, it is predicting that the advertising market is now recovering, and it expects a 7% rise in advertising revenues for January-March.

The results are the first reported under new chairman, Archie Norman, the former Asda chief executive who was appointed in November last year. Adam Crozier, the former post office chief executive, will join the broacaster as its new chief executive at the end of April.

The company’s overall revenues for 2009 totalled £1.88bn, down 7% from £2.03bn in 2008. However, the broadcaster said it had achieved cost savings of £169m during the year, as it streamlined its operations, and also reduced its spending on programme making.

This reduction was justified as the broadcaster’s share of peak time UK television viewing measured 28.2% for the year, up from 27.8% in 2008, the company claimed.

ITV has asked the Competition Commission if it can have greater flexibility in charging more for advertisements. To date however, the Commission has rejected this call, saying the current limits should remain in place to prevent ITV from abusing its dominant market position.

ITV argues that it no longer has such a dominant position because of the big growth in digital rivals, led by Sky. Last month, Sky’s owner BSkyB sold a 10% stake in ITV for £196m ($305m).

The Competition Commission had forced BSkyB to sell the stake after it ruled that it gave the company undue influence in the UK media.

BSkyB bought a 17.5% stake in ITV in 2006, but denied the purchase was aimed at blocking a proposed takeover of ITV by rival Virgin Media. BSkyB still owns a 7.5% stake in ITV.

John Cresswell, ITV’s interim chief executive, says: “Faced with the worst television advertising downturn on record, we took decisive action to improve our operational performance, deliver substantial cost savings and strengthen our balance sheet.”

ITV chairman Archie Norman said that under Crozier’s leadership, ITV would “become a very different business over the next five years”.

He adds: “ITV’s challenge is to reduce its dependence on a free-to-air model threatened by digital media and besieged by legacy regulation.”

Andy Viner, Head of Media, at BDO LLP commented: “This is a positive set of results and shows that ITV are holding their own in an increasingly challenging market. Management has done well to tackle the obvious and immediate issues. Their performance is ahead of the market, cash generation is good, net debt has been reduced, cost savings are ahead of target and the pension deficit has reduced. The ship is looking steady, but there are more rough seas to come.”

“New chief executive, Adam Crozier still faces the challenge of transforming a traditional broadcasting model in to one which creates both profitable content and a sustainable business model for the new ways that the public consume media. They must work on realising their revenues through video on demand and online advertising.”

“It is encouraging to see a good performance in the last quarter and that 2010 has started well. However, they will need to develop a strategy that avoids being so dependent on the cycle of advertising revenues. Their advertising revenues this summer will be boosted by the fortunes of England in the World Cup so it won’t just be Fabio Capello who prays that England make it to the final.”

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