As ITV celebrated its 65th birthday last week, the celebrations were marred by the fact that it was marked by another significant, but much less positive milestone. For only the second time since it started trading as a single entity in 2004, the broadcaster fell out of the FTSE 100 listing. The first being September 2008 amid the sub-prime crisis.
Its share price has lost 80% of its value since it’s 5-year high at the end of 2015, with the starkest drop occurring as a result of the slowdown in production and advertising revenue during the COVID-19 crisis. The business recently reported a drop of 43% in advertising revenue for Q2 which was the biggest factor driving the 50% reduction in share price earlier this year.
Whilst it would appear as though advertising revenue is seeing a tentative return (ad revenue for ITV in June was only down 23%) it will not be enough to help ITV retain its place in the FTSE 100 listings for this quarter. Instead, it is budget high street retailer B&M that will take its place. B&M has seen its share price increase by nearly 80% throughout the crisis. In comparison, their share price has recently topped 494.00 in August, which paints a telling picture of how consumers and investors alike are favouring the ‘short of it over the long of it’.
All Response Media viewpoint
The reshuffle of the FTSE based on performance is certainly a reflection of current consumer behaviour. The move from quality to quantity has been an ongoing trend on the high street for several years, with traditional retailers such as Sainsbury’s and John Lewis suffering at the hands of businesses such as Lidl and Primark. The COVID-19 pandemic has served to exacerbate that change in behaviour and will continue to do so as we see the longer-term economic fallout from reduced productivity, tightening of household expenditure and less accessible credit.
However, ITV’s decline in investor sentiment has not been completely outside of their control. Whilst the decline in advertising revenues for H1 this year has played a major part in their exit from the index, their share price has seen consistent reductions since 2015. There are numerous reasons for this but in the round, it has been their lack of speed, agility and flexibility that has contributed to their struggles. ITV has two main revenue streams: advertising and production. Both are predicated on a level of premium ‘quality’ which is under attack from evolving consumer behaviour and an increasingly competitive market. Subscription VOD services such as Netflix and Apple TV+ are producing masses of content that might not always be great, but it’s always good enough. It’s good enough for consumers that are always looking for the next ‘binge’ and always hungry for more. Whilst ITV has focused their attention almost exclusively on their heavy hitters (Love Island, I’m a Celebrity etc.), SVOD providers have taken the ‘little and often’ approach; sweating the small stuff and gradually eating into ITV’s viewing numbers, which have eroded their market valuation.
The ITV ‘juggernaut’ has been guilty of focusing solely on the bigger levers it feels will make a difference which is having a significant impact on its ability to compete. It is well documented that their BVOD offering has been a work in progress for many years and although it offers significant scale, it has lagged behind others in terms of its ability to effectively monetise its user base. They have also continuously focused on selling a long-term approach to all advertisers in an environment where performance today almost always trumps predicted performance tomorrow. Although that narrative had begun to change over the last 6-9 months, the COVID effect has accelerated that movement. Quite simply, they have been too slow to react to the changing needs of advertisers.
If ITV is to return to former glories, a significant rethink is required. They need to restructure and diversify their business interests as well as their approach to their core model. Their commercial heritage was based on a collective of regional businesses that operated independently but had a common goal: to take on the might of the BBC. That is the cultural ethos they need to return to, but instead of regions think platforms, products, channels etc. Speed, agility and flexibility are the attributes required to fight on many fronts. Without a change, the future for ITV will be challenging.
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