Bank: “ITV audience demographics to worsen”
November 7, 2022
Investment bank Berenberg is maintaining its ‘SELL’ advice on UK commercial broadcaster ITV to clients. Moreover, the bank is also cutting its advertising revenue estimates for the broadcaster saying that demand has dropped “quite sharply” for Q4/2022.
The bank suggests that ITV is not alone, noting: “Across Europe, the advertising environment is deteriorating, and it is no different in the UK. ITV will benefit from the World Cup, but this will not offset the decline in underlying demand for TV advertising. We now forecast a 1.8 per cent decline in FY 2022 advertising, down from -0.3 percent previously, and compared to consensus’s flat expectation. At the revenue level, this is partly offset by a more favourable exchange rate relating to US Studios, but the drop-through on advertising revenue is obviously many times higher than the margin on studios revenue.”
Berenberg cautions that ITV is living beyond its means, saying while ITV’s revenue has been running at above 2019 levels and despite a weakening economy and mid-teens consumption (minutes) decline, which implies double-digit effective price increases.
“Meanwhile, audience demographics continue to worsen. ITV will fare better than most in Q4 because it has World Cup rights, but this will create tougher comparisons for 2023. This may also affect ITV Studios: Paramount+ and ProSiebenSat.1 have both talked about trimming programme spend,” says the bank’s report.
There are also anxieties over the promised ITVX streaming platform which goes live on December 8th. The bank says: “Our media buyer contacts have suggested they still know relatively little about the content upgrade, which is surprising given that ITV hopes to monetise the platform largely through advertising. As we have said previously, we think ITV has been late to embrace AVoD, with players like Channel 4 well ahead. ITVX is thus welcome, but will arrive as the market becomes far more crowded given the launch of new AVoD streaming services including from Netflix and Disney+, as well as a rebrand of Channel 4’s offering.”
ITV’s shares are currently trading at about £0.72. Berenberg’s price target is £0.56.