ITV moves into pay TV as profits surge
Updated on 03 August 2010
ITV is to make a move into paid for television, launching some channels on Sky, as its new chief executive calls for change. But analysts tell Channel 4 News only owning the rights to its top shows - like Britain's Got Talent - will improve ITV's fortunes.
The move announced today marks a fundamental shift for ITV's business model which comes after chief executive Adam Crozier admitted the broadcaster had "failed to equip itself in the changed environment".
From the Autumn ITV will to put high definition versions of its digital channels ITV2, ITV3 and ITV4 onto Sky.
ITV1 HD is already available on Freesat, Freeview, Sky and Virgin.
However, analysts told Channel 4 News that switching to a pay model would not be a cure-all for the broadcaster.
Television market analyst Dr Toby Syfret, of media firm Enders Analysis, said: "Pay television on its own will not help anything. When you look at the model, the major earners are the platform owners like Sky.
"The real turnaround at ITV will come from getting the programme strategy right. I don't think pay will be the saviour. It's about trying harder across a number of revenue streams - like online, areas where they should be trying - and adapting to the adapting media environment, and also focusing on exploiting advertising revenues, which they have already been doing quite well."
The broadcaster also published half yearly figures which showed a pre-tax profit of £97m - compared to a loss of £105m in summer 2009. Its advertising revenues were up 18 per cent in the first half of the year - reflecting in part this summer's football World Cup.
The broadcaster said it expects the figure to rise by 15 per cent in the current quarter, but admits the outlook for the fourth quarter and into 2011 remains uncertain.
But chief executive Adam Crozier said the company had to change substantially, becoming less dependent on TV advertising and building new revenue streams.
He said 'free-to-air broadcasting' had been steadily eroded by the rapid changes in technology in the digital age at a time when pay television had seen continual growth.
Crozier put forward a "five-year transformation plan" under which half of ITV's future revenue will come from sources other than TV advertising, such as pay-TV, sponsorship, merchandising and online.
"ITV has simply failed to equip itself to compete in the changed environment... The business is still overly dependent on the very volatile spot advertising revenue... and the ITV flagship channel is continuing to lose viewing share by platform," he said.
"We've been historically weak on technology... our website lags behind the competition... our content business ITV Studios needs to increase its scale... We need to make ITV fit for purpose."
It would take around 18 months to two years to "improve the quality of our content" and there were "no quick-fixes... no silver bullets", Mr Crozier added.
ITV said it also plans to develop more drama and light entertainment which it would then sell around the world. It will launch a catch up channel ITV+1 in the New Year.
Media analyst Lorna Tilbian, executive director at Numis Securities, said selling its content globally would be key for ITV's future.
"The big thing for them is to get a big hit show, have the sense to own the intellectual property rights, and exploit it internationally," she said.
Mr Crozier seemed to agree, saying in his presentation to analysts: "We want to build a strong creative pipeline in the UK which of course we can then also sell internationally.
"It's a big opportunity for us and not one we have taken advantage of in any way."
ITV has only a handful of shows which it has sold internationally, such as Hell's Kitchen, which is screened in six countries and I'm A Celebrity, screened in seven countries. Mr Crozier said that it was an $87bn market.
"It isn't reinventing the wheel, it's just owning it"
So many chief executives have come in, trashed their predecessors, and promised lots of things to lots of people, media analyst Lorna Tilbian told Channel 4 News.
But the big thing for ITV is to get a hit show, have the sense to own the intellectual property rights, and exploit it internationally.
So they need to own shows like Britain's Got Talent, Who Wants To Be A Millionaire?, and X Factor. They need to make hits, own them, and exploit them. That's the only different thing to do from their predecessors, and the thing which will make a difference.
It isn't reinventing the wheel, it's just owning it.
Lorna Tilbian is a media analyst and executive director at Numis Securities.
ITV1's programme budget will be kept at below £800m each year for 2011 and 2012.
The broadcaster is also planning a £75m fund for programming online and on digital channels.
Figures today showed that viewing share declined on ITV1 and across the family of ITV channels as a whole.
ITV1's share of total viewing fell by five per cent to 15.9 per cent while share in peak hours fell by two per cent.
Total share of viewing for all ITV channels together was down two per cent at 22.7 per cent.
