Can ITV survive in the short-term?

ITV remains confident in the long-term course set by its content-led strategy, but will it be able to survive in the short-term?

ITV today announced total losses of £2.7 billion after a huge downward realignment of its asset valuation – the broadcaster reported a pre-tax profit fall of 41% in 2008 and a 20% decline in TV ad revenue in the first quarter.

As a result, ITV has been forced to cut programme budgets by £1 billion – £65 million this year and a further £70 million in 2011 – and 600 jobs, with chief executive Michael Grade saying that the “current conditions in the television advertising market are the most challenging I have experienced in over 30 years in UK broadcasting”.

ITV plans to save £155 million this year, rising to total savings of £175 million next year and £245 million in 2011, through a variety of cost-cutting measures, including redundancies.

The broadcaster has already made 1000 job cuts in the year to February 2009, which has seen its total headcount reduced from 5,500 in early 2008 to 3,900 by this summer.

ITV also plans to sell struggling social networking site Friends Reunited and online business directory Scoot, as well as Freeview business SDN, in a bid to save cash.

Last year proved to be tough for all broadcasters, with all terrestrial channels recording a year on year decrease in commercial revenue, however, ITV1 was the worst affected after a 19.5% revenue fall compared to December 2007 – despite the broadcaster’s big effort with the return of News At Ten and the revamped weekday and weekend schedule at the start of the year (see TV Market Round-Up – December 2008).

However, it seems that its not just the recent economic downturn that has hit the broadcaster, as ITV1’s revenue, audience share and CPT has followed a downward trend since 2004, with a direct correlation to its declining share price, which has plummeted dramatically since 2007, due to more money going online and the global advertising collapse, to Monday’s all-time low of 22.5p.

The broadcaster claims that “the [ITV] Board remains confident in the long-term course for the business set by our content-led strategy”, however, with £65 million slashed from its programme budget this year alone, surely ITV is entering a vicious circle.

If ITV reduces spend on content in the short-term, viewing share will inevitably be affected. In a statement released today, Grade said that the broadcaster has been forced to take “tough action” due to the unprecedented conditions, despite the fact that this might harm them in the long-term.

In the weeks leading up to ITV’s financial results, reports suggested that the commercial broadcaster had drawn up plans for a three-way merger with Channel 4 and Five to create one broadcasting giant that would save hundreds of millions of pounds (see ITV proposes merger with Channel 4 and Five).

However, the proposals have since been rejected by Channel 4 and Five and would surely fall foul of the Competition Commmission.