Marks on Adam Crozier’s performance have got to at least be a B+
Following on from the ITV and BSkyB results announcements this morning, Raymond Snoddy says we have got a decent handle on how the UK’s two largest commercial broadcasters are weathering the storms of recession and technological change – and on the whole, in their different ways, are producing respectable performances…
The trouble with five-year plans is that they come to an end far too soon. And unless you are the Central Committee, or the Chinese Communist Party, or the Soviet Union in the old days, you can’t fiddle the results.
Adam Crozier, the chief executive of ITV, is heading towards the half way mark in his five-year “transformational” plan.
The marks on his performance have got to at least be a B plus and are continuing to rise.
Costs have been cut, profits increased, debt reduced drastically so that net debt of £612 million in 2009 has been turned into and a positive cash pile of £92 million.
A 15% rise in pre-tax profits to £235 million in the six months to June and a £91 million increase in revenues at ITV studios to a total of £335 million boosted the share price. It is no longer at embarrassing levels and the initial reaction to the results was an 8% rise to 78p.
The usual trick with the City is to manage expectations and hold a little back so that there is a small rabbit to pull out of the hat on the day. And that was exactly what happened.
The aim is to force analysts to put out the traditional legend – ITV performance ahead of expectations. Yet by definition the City is never happy and can find threatening clouds on the sunniest of days.
This time there are short-term worries that advertising around the Olympics is badly down, apparently because of the reluctance of companies who are not involved in the Olympics to arm-wrestle with the official sponsors.
In fact ITV never expected any uplift from the Olympics because of the small, obvious fact that it is not showing any of the Games. With the BBC broadcasting on 24 channels ITV could, however, yet benefit from Olympic refugees who could become a growing band as the deluge of sport gathers strength.
ITV admitted that the summer drop in advertising revenue had continued, with July down 10%, August down 11% and September somewhere between flat and 5%.
While ITV expects advertising revenue to outperform the television market it will be broadly flat for the nine months to to the end of September.
Percentages really matter here with every percentage point representing a revenue fall of around £15 million.
Then of course there are increased worries about demand in the economy, which has contracted for the third successive quarter, and the continuing impact of George Osborne’s Plan A.
By any standards ITV’s performance amounts to solid progress and Crozier and his chairman Archie Norman have established themselves atop the UK’s largest commercial broadcaster. The sneering comments that greeted their arrival – the postman and the grocer – are heard no more.
Yet it still amounts to a modest transformation at best, though Crozier could claim following the latest results that it was gaining momentum. Maybe the best is being saved up for the second half of the five year plan.
Acquisitions
The heart of the plan involved a dramatic shift away from the company’s current dependence on advertising in the direction of pay TV, turning ITV Studios into an international production powerhouse and a warmer embrace of the internet.
Total non-advertising revenues were up by £106 million – 26% to £514 million – though the crucial contribution from ITV Studios was flattered by front-loading of a number of important shows.
At least Crozier and Norman were not daft enough to sell ITV studios, as some in the City were advocating, but neither have they pulled off the major acquisition that many feel will be necessary before there can be any talk of transformation.
The announcement that ITV Studios has bought the Norwegian independent Mediacircus and agreed a joint development deal with Reshet, the Israeli broadcaster, shows impressive internationalism – but hardly looks transformational.
ITV must have had a look at All3Media and Endemol but maybe the price wasn’t right.
This week’s reports that ITV is in talks to buy Have I Got News For You producer Hat Trick Productions could be a big step in the right direction. Comedy is one of the most difficult genres in television and Hat Trick has cracked it – all the way from Drop The Dead Donkey to the splendid Outnumbered.
Maybe ITV should get a move on. There are not all that many unencumbered independents of substance to chose from and every time the music stops another chair is taken away.
The Americans have at last started to recognise the implications of the stream of creative British successes in the US and want to tap into the original source.
Shed Productions – founded like All3Media by former Granada executives – is flourishing under the control of Warner Brothers. It helped that Warners sweetened the deal by setting aside a pot of 25% of the equity for Shed’s top 30 managers, excluding the founders. It will be a case of millionaires all round when the shares are slowly bought out.
Sony Pictures Television is also in the field and has been tipped as another potential suitor for Hat Trick.
Boosting production through acquisition is the one really transformational thing that is within ITV’s power. Increasing its role in pay and on-demand substantially, despite the belated arrival of YouView, will be a slow, difficult and perhaps even impossible task.
BSkyB
The reason why this is so was seen when BSkyB announced its annual results complete with record profits. With revenues up 4% to £6.8 billion and operating profit of £1.2 billion, a rise of 14%, the results provide an eloquent testimony to the enduring strength of the pay TV model through recessions.
The 10.6 million customers included 312,000 new net arrivals from last year with churn down to 9.9 %.
Naturally the City detects many storms hanging over Sky – many of them darker than those threatening ITV.
We can easily dismiss the canard that Sky is not fit to hold a broadcasting licence because of phone-hacking at the News of the World. Even if there is such a finding it will head off to the courts – and can be circumvented anyway
The high costs of acquiring Premier League rights is an obvious worry, although it must be assumed that BSkyB has done its numbers and can make a profit on the business.
There are two serious threats on the horizon. The arrival of Netflix in the UK (announcing one million subscribers yesterday) with free introductory offers at a time when Sky has seen fit to increase subscriptions by up to £3 a month.
Sky’s response to the OTT operators – the launch of Now TV with movies for as little as 99p could start to eat its own audience.
What is certain is that this week we have got a decent handle on how the UK’s two largest commercial broadcasters are weathering the storms of recession and technological change – and on the whole, in their different ways, are producing respectable performances.