ITV's Revenue Takes a Hit: Unveiling a Deeper Ad Recession
ITV's CEO remains optimistic about the future despite the current ad recession, stating it's impossible to tell when revenue will recover but there's a positive outlook heading into the second half of 2023
ITV experienced a sharp decline in profits during the first half of this financial year, primarily due to challenges in the advertising market. Profit before tax dramatically dropped to £45m, marking a 79% decrease compared to last year's figure of £219m for the same period. Earnings before interest, taxes, and amortisation (EBITDA) also saw a significant fall, decreasing to £133m from £295m in the corresponding period last year.
Total revenues experienced a slight decline of 2%, but this was mitigated by the growth of ITV's digital advertising business. The company's streaming service ITX played a significant role in boosting digital advertising, resulting in a substantial 24% increase in revenues to £179m during the first half of the year. However, overall advertising revenue declined by 11% to £811m. This decline was anticipated by ITV, as they had already warned of decreasing ad revenues in March. At that time, they had predicted a drop of 10% to 15%, making the 11% decrease reported today fall within the more optimistic end of their estimates.
“There is an uncertainty regarding the future of advertising, making it difficult to predict,” stated Carolyn McCall, the CEO of ITV, during an investor call on the morning of July 27th.
"While some may claim that advertising will be fine, the reality may prove otherwise. However, the positive aspect for us is that numerous discussions about campaigns are currently taking place," she further explained.
McCall did not provide any information on how ITV is addressing the reputational crisis it experienced earlier this year after presenter Phillip Schofield left the channel. At that time, there were suggestions that the company would lose millions in sponsorship deals following the scandal. However, ITV released a statement refuting these claims, stating that they were "untrue".
Positives ahead?
ITVX, which was launched in December 2022, witnessed a 29% increase in its user base, reaching 12.5 million. Streaming hours also saw a significant rise of 33%, totaling 737 million, thereby contributing to a substantial growth in digital revenue. Additionally, ITV Studios experienced an 8% increase in revenue, amounting to £1bn, driven by the UK market. McCall stated, "The strong growth observed in Studios and Digital revenues during the first half of the year is a testament to the relentless progress of ITV's strategic transformation, effectively compensating for the anticipated decline in the UK advertising market."
According to figures from YouGov's BrandIndex, ITVX surpassed Disney+ and All 4 to become the fourth most popular streaming service in the UK in April. However, recent performance figures for ITV and BrandIndex are currently unavailable.
ITV's first half results align with the broader challenges facing the industry. The Advertising Association (AA) and WARC's projection for advertising spend in the UK indicates a decline in traditional channels, while digital platforms, particularly search, online display, and broadcast video on demand, experienced growth in the first quarter.
ITV expects an improved second half for its advertising revenue due to larger streaming and linear audiences anticipated to watch the Women's World Cup, the Rugby World Cup, and the highly anticipated return of Big Brother in the autumn. CEO McCall acknowledged the challenging advertising recession but stated that the broadcast business is meeting expectations.
McCall stated that Q3 is indicating a significantly more optimistic advertising market, although she acknowledged the difficulty in foreseeing Q4. According to her, this sentiment is shared across the industry, including agencies, as positive discussions are taking place. Additionally, she mentioned that all sponsorship deals for both Q3 and Q4 have been successfully secured.
McCall expressed confidence in achieving all our KPI targets, ensuring that we will generate a minimum of £750m in digital revenue by 2026. Referring back to the full-year results in March, she designated 2023 as the year when our streaming business will experience the highest level of net investment, with subsequent growth in profit anticipated.
