Post-Brexit, media companies face a troubling future

ITV’s share price plunged to a 154p post-Brexit low before recovering a little to 170p.

From TV to newspapers, share prices in media companies have fallen since the EU referendum. Will things stabilise? Don’t count on it, writes Raymond Snoddy

In the Brexit deluge, the big picture has dominated the story of the economic impact in the City – the pound weakening by 14 per cent against the dollar, commercial property funds closing their doors and the FTSE 100 dropping dramatically and then recovering on positive prospects for some of its large international member companies.

Pharmaceuticals, one industry where the UK is internationally competitive, has fared well on hopes of increased exports.

Another industry where the UK has a world-leading reputation – the media – has dropped like a stone and largely stayed there. Brexit splattered the sector in red ink, although there were exceptions such as Pearson, now an educational services group, because most of its profits come from the US in the now stronger dollar.

Any media company exposed to the advertising market – already on pause control in the run up to the referendum – is in for a rough ride in the coming years.

The saddest thing of all is that it will be newspapers, already hanging on, or trying to lift themselves by their bootstraps in the direction of the light, which will be hardest hit from the decline in advertising that is likely to follow the expected slowdown or even recession.

It’s the weakest now getting the hardest kicks.

Local newspaper group Johnston Press is no longer a City darling but had been paying down its debts, cutting the cost of borrowing and trying to innovate – until Brexit.

On 21 June Johnston was at 30p, on 24 June 22p and the stock has now carried on down to 15.5p.

For Trinity Mirror the same numbers are 112p, 105p and 83p with the Daily Mail and General Trust – 650p, 610p and 582.5p.

There is unfortunately a pattern there and one that is enduring and even, in some cases worsening after the initial shock has been absorbed. Any reduction in consumer spending and the threat of a full-blown recession – if it happens – could only make the future more challenging for newspapers and indeed all advertising funded media.
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Battered Remainers will allow themselves a momentary smile at the prospect of Brexit-supporting newspaper proprietors being hit for hundreds of millions, if not actually billions, by getting what they most wanted.

According to Claire Enders, founder of research group Enders Analysis, Brexit is a disaster for the media and creative industries and has essentially wiped out three years of stock market growth for the sector.

At the centre of the shock, and a company that has been transformed and judged by many to be well run in recent years, is ITV, whose stock price has gone out in the ebbing tide.

As our biggest commercial broadcaster ITV got the headlines: “ITV sees almost £2.5bn wiped from market value.”

From a one year high of 280p last July, ITV plunged to a 154p post-Brexit low before recovering a little to 170p.

The attention has focused on ITV because of the obvious opportunity that now opens up for predatory American media giants.

In the past, companies such as Liberty Global have always complained that ITV was simply too expensive. It’s not nearly so expensive now.

And their ambitions would get another boost from the relative strength of the dollar against the pound.

Will it actually happen? Unlikely at the moment. The UK, and by extension ITV, are probably facing three years of uncertainty at best and American investors – rather like American tourists – don’t like the whiff of uncertainty or potential danger.

In a Presidential election year, with their very own “Brexit” scale shock potentially on the horizon – the arrival of a President Trump – the gaze of the large American players may be focused on domestic events at least until the autumn.

Even Sky, largely insulated for a while at least by subscription contracts, has fallen over the past year from 1141p to 840p.

Does any of this matter, after all it’s only paper money and shares go up as well as down and everything will be fine when the blizzard passes, won’t it?

A falling share price affects corporate confidence, ability to borrow for future investment and reward staff with share options and also limits room for manoeuvre on takeovers.

While the impact of Brexit on advertising-supported media is all too predictable, everywhere else you look there are unintended consequences for the media and creative industries that could not be catered for with a simple In – Out vote.

What, for instance, is going to happen to the unique £5 billion a year multi-channel digital television business based in London?

The multi-national TV players such as Discovery and Disney are here in such significant numbers because when they get the relatively liberal Ofcom licence – and there are hundreds of Ofcom television licences – they are free and legal to broadcast to any other EU country whatever its domestic rules on taste, decency and advertising.

London will almost certainly remain a great centre for television production but will some of those companies simply find it more convenient to move to Holland or Ireland?

Lord Puttnam has predicted that Brexit will also have a devastating impact on the UK film industry because the EU supports a large amount of script development and European co-productions.

“It’s the smaller, more ‘British’ movies that will suffer because we will become increasingly reliant on American money,” said Lord Puttnam, who predicted that some of the best mobile talent will in future end up in Berlin or Paris rather than London.

But what about all that money we won’t be paying to Brussels any more?

In hard times and declining tax revenues it is hardly likely that tax incentives for the media industries will be on any politician’s priority list.

And things could get much worse. The hunt will be on for any money-raising schemes – even those previously rejected because the political sensitivities outweighed any likely financial gain.

Those who believed that the threat to privatise Channel 4 was essentially over may have to think again in a time of post-Brexit financial realities.

And maybe even though the main BBC Charter renewal process has mercifully been signed off, a cash-strapped Theresa May Government might have to dip into BBC assets such as its 50 per cent stake in UKTV and BBC Worldwide – or indeed anything she can get her hands on.

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