Some analysts have pointed that the broadcaster’s reliance of advertising spending in one of its weaknesses when faced with online competitors such as Disney+ and Netflix Inc (NASDAQ:NFLX), with Richard Hunter at Interactive Investor saying the revenue stream is “something of a thorn” in the company’s side.
“Companies understandably pulled back from advertising goods that they could not sell and, in any event, given the fact that costs became a priority, the advertising budget is often the first to give way. Even with advertisers now slowly returning, much of the damage has already been done, with a 21% decline in revenues for the half-year including a 43% decline in the second quarter alone”, he said.
However, Shore Capital analyst Roddy Davidson told Proactive that while ITV suffered a setback, it may be a little early to write off TV advertising despite the rise of streaming services.
“In the immediate future, the one advantage TV advertising has is that it can deliver a mass-market audience to a brand over a wide media. I don’t think that’s going to disappear in a hurry”, Davidson said, adding that many brands “will be looking to galvanise their sales post-lockdown, and one of the most effective ways to do that remains TV advertising”.
“Advertising exposure has always created volatility in earnings and limited short term visibility. TV advertising is undoubtedly under pressure and has been for a long time. But I don’t see it disappearing wholesale in the short term”, he continued, highlighting that ITV and Scottish broadcaster STV Group PLC (LON:STVG) are “head and shoulders above anyone else in terms of their reach in UK commercial television”.
Davidson said that while he did not disagree that a decline in TV advertising was the long term trend, the pandemic had not pressed the accelerator to any major degree.
“I don’t think we’re going to see TV advertising disappear over the next 12 months”, he said.
Signs of recovery
Other signs that the slowdown in TV ad revenues for ITV is more of a bump in the road rather than a sign of permanent change are that shoots of recovery are already starting to appear at the group as the effects of the pandemic begin to recede.
“Early signs are positive, advertising is said to be gradually recovering, although still markedly down on usual levels”, said Hargreaves Lansdown analyst Emilie Stevens, who added that most of ITV’s paused productions in its Studios business were also back in action.
“Demand for fresh content has never been higher and ITV said itself demand for content from streaming platforms was particularly strong”, Stevens said.
The analyst added that even if the ad spending rebound proved to be short lived, the content production arm at Studios now accounted for “a significant chunk of the group’s income [and] should keep money coming in”.
ITV’s smaller projects, notably the BritBox streaming platform joint venture with the BBC and its Planet V advertising platform were also proving popular, Stevens said.
Shares in ITV were 3.3% higher at 62.9p in mid-afternoon trading.