LONDON (Reuters Breakingviews) - Carolyn McCall’s first earnings as boss of ITV on Wednesday showed a familiar trend. The UK free-to-air broadcaster’s traditional business is shrinking, while its online audience is large but not very profitable. Filling that gap requires investment in advertising technology. A lower payout at least gives McCall some headroom.
The “Love Island” producer’s two main businesses are an odd couple. It makes about as much money selling TV shows and formats to other channels as it does from traditional 30-second advertising spots on free-to-air television alongside shows such as “Coronation Street”. But the ratio is moving in one direction: ITV Studios made about 1.6 billion pounds in revenue last year, up 7 percent excluding the effects of acquisitions and currency movements, while the broadcast and online business shrank 3 percent.
That decline is partly due to the group’s television viewers shifting to its ITV Hub digital service, which shows live shows and allows users to catch up on past episodes. About 20 percent of live programmes are now watched through the hub, according to Morgan Stanley analysts. ITV reckons the time customers spend online grew 39 percent last year, while three-quarters of the UK’s 16 to 24 year-olds are registered with the service, a demographic coveted by advertisers. But ITV is struggling to make much money out of this audience: its online, pay and interactive unit’s sales were 248 million last year, less than 8 percent of the group total.
Part of the gap between digital audience and revenue is intentional: ITV won’t want to drive away new users with irritating adverts. There’s also a technological deficit, however. ITV is not set up to deliver the same level of user targeting that advertisers are used to with digital giants like Facebook and Google. Online rival Netflix, meanwhile, invests heavily in algorithms that help registered viewers find shows they might like to watch.
Investment is costly, but McCall has at least given herself some headroom, by choosing not to pay a special dividend. That means 2017’s payout will be nearly 180 million pounds lower than the year before. A 7 percent fall in the share price suggests investors are irked. In the long term they may be better off.
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