The broadcaster, which holds the rights to ratings winners such as the England qualifiers for the 2020 European Football Championships and Love Island, released its third-quarter results today, which just so happened to be the same day as the North American and Dutch launch of Disney+, the new streaming service by Walt Disney Co. (NYSE:DIS).
The Disney+ service is expected to have up to 90mln global subscribers by 2025 and currently the subscription costs half of Netflix Inc’s (NYSE:NFLX) US monthly fee.
Meanwhile, ITV reported “positive feedback” on BritBox, a joint venture with the BBC to collect all their own production on one platform, which was launched in April offering a £5.99 monthly subscription fee – also half of the price of its peers in the UK.
However, analysts at Shore Capital do not see the subscription price as an attractive point for viewers, considering those programmes can already be accessed on ITV’s and the BBC’s existing free platforms.
Richard Hunter, analyst at Interactive Investor, echoed concerns over BritBox’s success given the fierce overseas competition from the likes of Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL) and the aforementioned Netflix and Disney, all of whom have “an intense desire to make their presence felt” and “money to burn in establishing themselves”.
Online subscribers grow
Nonetheless, ITV’s online offer reported growth in the first nine months of 2019, with online viewing figures of full programmes up 10% year-on-year to 378mln hours, while the group’s total viewing hours were down 6% to 12bn.
ITV Hub, the broadcaster’s free streaming service, reached 30mln registered users two years ahead of plan in a 12% yearly jump.
ITV boasted four of the top five highest rating new dramas this year and achieved peak viewing of 12.8mln for its Rugby World Cup coverage; try as some people might we should not forget the immense success of in-house production Love Island and the launch of a US edition this year.
The firm expects ITV Studios production revenues to grow by 5% this year and at least that rate in the medium term with a 14% to 16% margin, although the phasing of programme deliveries will hit next year’s performance.
Revenues are at risk
According to Shore Capital, ITV has an “unrivalled” ability to capture the mass audience, supported by a portfolio with high commercial and strategic value.
However, the political and economic uncertainty may hit the advertising revenues, already expected to drop 2% this year, with analysts concerned over the broader sentiment towards cyclically-sensitive stocks, making the case for a ‘hold’ recommendation.
UBS, which remained ‘neutral’, pointed out that revenues are driven by advertising spend and are sensitive to the strength of the UK advertising market.
“ITV Studios’ growth has been primarily acquisition-led, and revenues are at risk if recent mergers and acquisitions do not deliver the targets set out,” analysts said in a note.
Liberum, on the other hand, said the trading update was “encouraging”, as the company is confident in the full-year guidance, With the promise of a full-year dividend of at least 8p suggesting a 6% yield, Liberum reiterated its ‘buy’ recommendation.
As Interactive Investor’s Richard Hunter observed, “ITV is doing everything in its power both to reduce reliance on advertising income while reacting to the ever-increasing number of options being provided by new and existing entrants.”
“The market consensus of the shares as a hold, albeit a strong one, will need a positive catalyst before it can be improved, and this is a tough ask when the competition has so clearly thrown down the gauntlet,” Hunter declared.
Shares were up 1% to 137.25p on Tuesday afternoon.