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Brexit: ITV could suffer

February 26, 2019

By Chris Forrester

UK commercial broadcaster ITV unveils its latest set of results on February 27th but some analysts are expecting ITV to ‘sound the alert’ about ad revenues because of concerns over Brexit.

Carolyn McCall, ITV’s CEO, warned in November last year that ad-income for the fourth quarter (to December 31st) could fall by 3 per cent and that last month could suffer by as much as 8 per cent.

Patrick Wellington, an analyst at investment bank Morgan Stanley , suggests in a note to clients that ad-revenues could slide by up to 20 per cent during February, and that there would be a modest recovery in April, flat in May but tumbling between 15 per cent -20 per cent in June and July (although those months last year also saw the peak benefits of the World Cup football screenings).

“Media buyers see little chance of ‘lost’ advertising being recovered in [the second half] even if the economic situation becomes clearer,” said Wellington.

That’s the bad news. But William Packer, analyst at Exane/BNPP in his note to clients, lists a number of likely announcements that will emerge during the event.

  • The mooted streaming service will be modelled on Britbox, the US product offering with c400k subscribers in the US
    • The product will ‘cost more than £5 per month’
    • BBC and ITV are set to cooperate on the venture (meaningfully boosting the content on offer vs a standalone ITV offering)
    • BBC and ITV are ‘understood have discussed commissioning new shows for the platform’
    • The SVoD product will NOT replace existing on demand services (ITVhub and iPlayer). All BBC shows will remain free of charge on iPlayer for their first year after broadcast (and then shift to the new offering)
    • Channel 4 is not expected to be a part of the venture at this stage although is part of discussions

Packer adds that while the ITV SVoD offering has been well flagged by management for some time so we think is ‘in the [share] price’. A confirmed role for the BBC in the product offering (and sharing tech/marketing costs), BBC/ITV potentially offering unique content on the platform and an impending announcement are all small positives in our view.

“That said we remain sceptical of the long term success of a UK PSB SVoD offering considering the deep content libraries and huge marketing firepower of the 3 large incumbents (Netflix, Amazon and Sky’s Now TV) and limited content differentiation vs iPlayer/ITVhub. We rate ITV neutral. In our view Brexit newsflow is the likely key driver in ITV’s share price in the next 6 months, although investment in SVoD may weigh on the company’s EPS momentum,” adds Packer.

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