It’s a truism for all the consultants and other experts from media studies who know all there is to know about that the future for TV and the digital world that ‘content is king‘. It is also a truism that free to air TV is dying and will be killed by the internet and the likes of Google and Apple, Netflix and their fleet of apps and gizmos.
Those claims are talked up by all in sundry in TV and other areas of broadcasting. It’s the fashion to decry TV’s future. Certainly many in the Australian TV industry talk about content and the threat to the industry’s future, but don’t know very much about how content is created, how the benefits accrue to the owners and how to build a successful business – with the partial exceptions of the ABC and the Seven Network.
But one free to air broadcast group that has gotten the message big time apart from Rupert Murdoch’s Fox business, (and you only have to watch Murdoch and his now renamed 21st Century Fox Group to see what can be done) is ITV, the main UK commercial free to air broadcaster. It’s using its content creation and production business, called iTV Studios to find new areas of growth and profits. In fact ITV Studios is now driving the revenue and profit growth at its parent faster than the terrestrial TV business and its growing online services.
It’s an evolving business model could be imitated here (to a lesser degree) but won’t as our TV networks remain fixated on competition and debt (Seven and the said to be about to float Nine Network) reduction, that’s marked by insular thinking in many cases and certainly gloom and doom.
ITV continues to show the way to other TV operators (especially Australia’s slack trio) about how to make money in tough times. In fact ITV is growing returns from its content business and managing to increase profit margins, on a negligible increase in revenue, at a time when TV ad revenues are weak in the UK (just as they are in Australia) which is something that seems well beyond the ability of Seven, Nine and Ten in this country.
For example, Ten will report another loss for the 2012-13 financial year in several months time (It balances on August 31), Seven, part of Seven West Media (SWM), will report lower earnings than the year before, while we have no idea of Nine’s true figures because of the restructure, sale and spending spree the network has been on in recent months. But it won’t be making more money after blowing $20 million or more on the London Olympics last year and having to make big payments for the NRL and Cricket TV broadcast contracts.
Seven produces more of its programs in house than other networks and has now three major or emerging franchise – Home and Away, My Kitchen Rules and House Rules. All are being sold or have been sold into world markets and Seven controls the intellectual content and rights and benefits from things like format fees. Others made in house include Winners & Losers, the just finished Packed To The Rafters and its new drama, A Place To Call Home. It is the only Australian network in a position to grow its content business.
But among Australia’s commercial TV businesses, none have gone as far as ITV, and none are now generating the sort revenue or earnings growth that ITV is now producing.
ITV Half Year Results Presentation
ITV is in a far more competitive market in the UK, against the BBC, smaller free to air broadcasters, the Pay TV giant, BSkyB, plus other aggressive subscription TV groups, such as BT and Virgin. It’s production arm is also growing in the most competitive arm of all, the US.
But it is now very profitable and growing and it has done so by targeting production and content ownership via ITV Studios, which has been buying up smaller competitors in the UK and the US (and relaunched itself in Australia late last year) to become the 5th largest independent producer in the US.
ITV said this week in its interim results that it expects its US operation to deliver 64 shows to 34 channels this year, supplying 899 hours of content. This compares with 12 shows, seven channels and 119 hours in 2010.
Overall, revenues from ITV Studios rose 11% to 395 million pounds ($A663 million) in the six months to the end of June, providing all the growth for the group’s 2% rise because revenues from the company’s Broadcast & Online division fell one per cent to 914 million pounds ($A1.5 billion).
ITV’s group results show adjusted profit before tax rose 16% to 270 million pounds ($A453 million) in the first six months. That interim figure will be as much, if not more than what the Australian free to air industry will make in a year. ITV Studios, makes shows including Mr Selfridge, Titanic and Come Dine With Me, and in Australia has provided facilities for the ABC to make its excellent Dr Blake’s Mysteries.
ITV studios grew revenues 12% and international production 16%. Profits – earnings before interest, tax, depreciation and amortisation – at the division rose 26% year on year to 63 million pounds ($A105 million). That’s more than the Ten Network will makes this year, on any basis.
ITV has been on a buying spree in the past year, acquiring eight production companies in the past year in the UK and US. These have included Big Talk, the production company behind Shaun Of The Dead, Hot Fuzz and The World’s End. ITV says these acquisitions will add 100 million pounds (nearly $A170 million) to the revenues of ITV studios in the next year, with most of that coming in the US market.
ITV said its online, pay and interactive businesses saw good growth in revenues . That includes the ITV Player catch-up TV service, which grew 17% year on year – with first-half growth up 19% to £56 million pounds, or $A94 million. Catch-up TV is around 10% of the network’s total viewing, according to ITV’s release.
Content might be king, but you have to own it and grow it and take your chances. ITV produces programs for itself and for competitors such as ITV and Sky. None of our trio of TV midgets would think of buying from another network, or producing it a competing program. Quite often ITV Studios has to compete with other producers to supply shows to ITV’s FTA channels.
And there is a very common denominator between our trio and iTV – debt. ITV has little.
Ten has low debt after raising $400 million or more in new capital and through asset sales, but much of that has gone not only to cut debt, but finance new programs (and been wasted to a degree). Nine has spent more than $340 million buying TV stations in Perth and Adelaide and will have debt of more than $1 billion. Talk this week of a float to raise between $800 million and $1.2 billion will reduce that debt, but it will still be too high.
Seven West Media’s debt is falling, but is around $1.3 billion, which is still too high, but falling.
And ITV – debt of around 54 million pounds, up from a year ago when the company had more than 200 million pounds of cash. But that has been used to make dividend payments, buy the company’s London HQ (and stop rent costs) and finance around half the 100 million of new content company purchases. The remainder will be paid on the basis of performance contracts.
So ITV has low debt, a growing online business and a rapidly expanding content production and generation business in the UK, US and Australia is using that to reshape the company and achieve growth for shareholders and employees, and provide good viewing (Downton Abbey for one). The lesson is there for Nine, Ten and Seven.
