UK commercial TV operator, ITV, has once again proved that the free to air TV model isn’t dead, dying or about to depart this mortal life.
The broadcaster was close to collapse in 2008-09, thanks in part to a destabilising raid on its share register by James Murdoch and BSkyB which snared 17.9% to prevent the takeover of the small Virgin cable-based Pay TV business (which cost BSkyB the best part of $A600 million in losses).
This week it once again confirmed that it is a highly profitable, growing media company by reporting a 27% jump in profits for the year to December.
ITV reported profit before tax of 581 million pounds, or more than $A1.070 billion, on sales of 2.4 billion pounds (more than $A4.4 million).
That’s a profit margin of close to 256, not as high as the 29% reported by Seven West Media (SWM) for the Seven Network for the December half year, but certainly better than many other TV businesses around. Nine Entertainment (NEC) this week revealed an EBITDA margin of 23%.
ITV’s result is also substantially above the $US858 million ($A950 million) that Fox TV earned in the US for Rupert Murdoch in calendar 2013.
But seeing nearly four years ago it was broke, struggling with huge debts, the comeback remains on track and is astonishing, given that in the same time, file sharing TV viewing, streaming (Netflix etc) and other new competitors have emerged (Apple TV). And yet, they haven’t had an impact on ITV and its rebound, making a nonsense of the dire warnings tech heads and other know nothings regularly make about ‘old media’.
Debt has been cut to nothing, then taken on to finance the dramatic expansion of its production business through ITV Studios, now the second biggest profit source for the company. ITV is now major global content producer, rivalling the BBC.
The rebound has been driven by chairman Archie Norman (the man whom Wesfarmers imported to tell them how to make the Coles takeover work. Norman found Ian Cohen as CEO of Coles), and CEO, Adam Crozier, the former head of the British Post Office and a former advertising executive, (who was headhunted by Norman to run ITV).
It has been highly successful as Crozier and his board has driven ITV deeper into production in the UK, US and Australia, which in turn has not only lifted revenues and profits from making TV programs, but found new TV content for ITV itself – such as Downton Abbey which was financed out of money ITV had been wasting on lacklustre local production.
ITV Studios lifted earnings before interest tax and amortisation 24% to 133 million pounds, or $A246 million. ITV Studios boosted revenues 20% to 857 million pounds, or more than $A1.58 billion. ITV produces programming for rival networks, including the BBC in the UK, and from successes such as Downton Abbey which is marketed around the world and generates substantial non-TV income.
The reason for the surge in earnings, on a much smaller rise in TV ad revenues and other income last year isn’t hard to see. In 2013 ITV’s main channel increased its audience share last year for the first time since 1990, on the back of successful shows including Downton Abbey, Broadchruch, and I’m a Celebrity … Get Me Out of Here! (which is made in Australia by the local arm of ITV Studios).
The channel had a 16.2% share of all viewing (including the ITV HD simulcast channel and ITV1+1 time-shift service) last year, up from 15.7% in 2012 and 44% back in 1990 when the TV market was less competitive.
Last month ITV made the very interesting move in setting up its own channel on SKY called ITV encore, to broadcast its own programming, current and past. Its ITV 2 and ITV 3 channels are now the most watched UK free to air channels outside of the existing five FTA networks.
One of those networks, Channel 5, owned by Richard Desmond, is on the market with bids due to close short. ITV has ruled itself out, according to reports in The Guardian and The Financial Times.
But there’s talk BSkyB with John Malone controlled-Discovery Channel, could emerge with a combined offer.
Malone already controls Virgin Media in the UK through his Liberty Global company. BSkyB is 39.1 owned by the Murdoch family’s 21st Century Fox.
Seven West Media would be the only Australian TV business with any resemblance to the modern ITV model.
Seven produces programs itself such as My Kitchen Rules, House Rules, A Place To Call Home, Home and Away and Million Dollar Minute.
These formats have been licensed, or the programs old into offshore markets. MKR starts in New Zealand later this yea.
Older programs such as Sons and Daughters, A Country Practice and Packed To The Rafters were also produced in house and generated income and profits for Seven from sales to Pay TV here and offshore and in exporting the programs to other markets.
