The gloves are off in the TV market

Following a wave of acquisitions and consolidation in the television market, the question left hanging in the air is whether ITV could itself become a takeover target. By Raymond Snoddy.

ITV’s director of television Peter Fincham revealed this week that the commercial broadcaster could have got itself in serious trouble, if it had taken the advice of expensive consultants.

Fincham told journalists of the received wisdom as little as five years ago, that mixed channels were either dead, or soon would be, and that expensive original drama was far too risky and expensive to pursue.

The ITV executive explained that consultants had produced a new forward-looking schedule for ITV that contained just one hour of drama a week.

The year was 2009 and Fincham did not say what firm of consultants was involved. At the time, however, the record shows that the illustrious Boston Consulting Group was advising ITV on how the company could become more profitable in future.

“Luckily we did not take their advice,” said Fincham, who noted that 2009 was the year that Downton Abbey was commissioned.

Since then ITV’s reputation, profits and share price has been enhanced steadily by a series of high-end dramas that have included detective mystery Broadchurch, Mrs Biggs and Whitechapel.

Outlining his plans to broadcast journalists, Fincham announced that Charlotte Rampling would be taking a lead role in the return of Broadchurch. There would also be a three-part adaptation of Julian Barnes’ novel Arthur & George and Code of a Killer, a true story of the first significant case to be solved by DNA.

It is difficult to imagine where ITV would be now if it had decided to opt for a cheap and cheerful future where mixed channels were “doomed”.

The company would certainly not be in the market for making dramas for the US networks or be in a position to accept funding from the OTT (over the top) players that have risen in the past few years.

ITV would also not be launching ITV Encore next month – the pay channel dedicated to the best of the broadcaster’s British drama.

The continuing importance of expensive drama comes as ITV begins to rub its hands at the prospect of a boost from the World Cup, after its share of TV viewing fell by 8 per cent so far this year.

Total external revenue was up a modest 2 per cent to £585 million in the three months to the end of March, but the respectable numbers come as ITV completes its 80 per cent acquisition of the large US independent producer Leftfield Pictures.

The $360 million deal makes ITV Studios the largest independent unscripted producer in the US with programmes such as Pawn Stars and Bridal Bootcamp.

Fincham made it clear this week that, all things being equal, there will be more acquisitions of production companies by ITV as it pursues, first and foremost, control of rights, but also the cash flow they bring.

The Leftfield purchase does something at least to redress the balance as American media giants such as Viacom, AMC, Liberty and Discovery march across the Atlantic to buy in the UK and the rest of Europe.

Suddenly the gloves are off and the Americans really have arrived. Conventional wisdom says some of them are in search of tax losses but they must also be buying into the skills and creativity of the UK production sector.

If they had been slightly smarter and less worried about regulatory rules, the Americans could have had ITV for a song. The share price hit an unbelievable record low of 23.9p on 20 February 2009.

The two most significant recent deals are the purchase of Channel 5 by Viacom and the joint Liberty-Discovery move on All3Media for £500 million.

Whether Viacom was wise to pay Richard Desmond £450 million for Channel 5 no longer matters; they have bought one of the UK’s three main commercial broadcast channels and with the right investment in people and programmes could eventually take the channel to the 10 per cent share that previous owners RTL once aspired to.

As a result of Viacom’s entry competition will intensify in the UK broadcasting market and that is good for both advertisers and viewers.

All3Media has taken an eternity to sell and the price of around £500 million is a long way short of the £750 million being sought by owners Permira in 2011.

Being owned by broadcasters with deep pockets rather than venture capitalists should help to open up international markets, particularly the US, for the super-indy created by refugees from Granada Television.

The deal proves just what an opportunistic company Liberty Global, the owner of Virgin Media, really is.

It appeared that Liberty and Virgin were out of content following the sale of both Cellomedia in Europe to AMC and Virgin’s 50 per cent stake in UKTV.

Now they’re back, and who knows what the limit of their ambitions will be.

Suddenly content is cool all over again and it is very difficult to find anyone who still believes that channels are dead.

It would have been surprising if Rupert Murdoch had decided to sit out this new dance as the music swirls and speeds up.

Not even Murdoch dared to have another go at the stake in BSkyB he does not already own but Sky Deutschland and Sky Italia are clearly another matter.

Cue the usual pandemonium with everybody from Ofcom and the European Commission on full alert.

The new wave of acquisitions and consolidation will probably continue throughout the year and will only start to ease because of a lack of likely targets.

The question left hanging in the air is whether ITV could itself become a takeover target, although with a share price now standing at 178p it would be a chunky morsel.

The business has been transformed since the dire days of 2009, not least the expansion of ITV Studios.

Given the current optimistic outlook for channels, production capacity and rights, who knows what will happen next.

Somewhere, just below the radar, consultants and venture capitalists are almost certainly already hard at work.

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