Big risks for ITV mean time to “sell”

itvA research note from investment bank Berenberg suggests it is time for its clients to sell their shares in UK public broadcaster ITV. Senior media analyst Sarah Simon praises ITV for its better-than-expected advertising growth, but poor online positioning could lead to a revenue downgrade over time.

She says the market is also seeing online video starting to take share from TV budgets in the USA, and she expects this trend to hit the UK, and this could be to the detriment of ITV. “Against this backdrop, ITV’s online video performance is cause for concern, despite various management reshuffles over the last few years aimed at boosting its digital business. The company is seeing online video growth, but less than that of the overall market and key peers such as Channel 4 and the BBC.”

Berenberg is also anxious that ITV (or any other network) could justify any claims for extra revenues in the form of retransmission fees, currently helping US broadcasters with extra cash from cable and satellite operators. Some have argued that ITV could earn £100 million a year from changes to the retransmission rules. However, Simon suggests that the UK regulators are not likely to favour permitting changes to the current status-quo where universal free access to network TV signals is the norm.

“ITV is currently bidding (we assume) to renew its free-to-air rights for the Champions League. These rights currently cost the company around £50 million per year,” says the bank’s report. “With BT Sport openly interested in bidding for more sports rights and BSkyB keen to maintain its premium assets, we believe there is a risk that either BT will bid for ITV games, or that BSkyB will look for total exclusivity. We believe ITV could be the squeezed middle in such a scenario. However, it cannot afford to lose the Champions League, in our view, since it is a major audience share winner, and, in odd years, it is now the only quality football broadcast by ITV since it lost the FA Cup to the BBC. As a result, the company could be forced to pay a significant increase on what it is currently paying. This could put pressure on its ability to hold programming costs to around £1 billion per year, without compromising on quality.”

“As far as TV advertising is concerned, meanwhile, we see a further issue: the internet. For while TV has proven broadly resistant to the internet thus far – with outdoor being the only other traditional media similarly blessed – we believe that, at last, there are signs that the long-awaited cannibalisation by online video may be beginning,” she adds..

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