Would you really want to be taking over the helm of a major television company in the current competitive climate? ITV may not be a dinosaur, but the days of easy money are over, as the company is forced to compete against the likes of Amazon, Netflix and YouTube to hold viewers’ attention. And there in the wings is the BBC, which, unlike ITV, is subsidized by the British tax payer.
The ITV share price looks like an excellent place to lose money for the time being. It’s been heading steadily downward from 178 in mid-October to an opening of 152 this morning. Falling advertising revenues, slower than expected growth in its content production business, and increased property costs are all starting to tell.
ITV share price is indicator of more fundamental issues
Like many other media companies, ITV is also fighting against the migration of advertising spend to new digital platforms like Google and Facebook. It is a far, far cry from the days when it represented one of four television channels, of which two were the BBC!
Chairman Sir Peter Bazalgette pointed a finger at the uncertain economic and political climate facing the UK, but just about every company with heavy UK exposure can do that right now, and some are actually going up in price. According to Jonathan Helliwell, an analyst covering ITV stock for Panmure Gordon, the ITV share price is also being undermined investors falling out of love with broadcasters. In his words, “they think that structurally they are toast.”
Studio growth can’t hide falling ad revenues
Revenues were up by 1% in the nine months to the end of September. However if you strip out inter-divisional deals, revenues fell by 1%. ITV Studios reported some growth (9%), but this was more than offset by a poor showing in both online and broadcast. We don’t like the fact that ITV with its reach and brand is not doing more with online. This is going to be a critical battleground if the company is going to survive, and to see it suffering makes us and a lot of ITV shareholders fairly nervous.
Fund manager Neil Woodford thinks differently, and has recently added ITV shares to his fund. Woodford thinks that the structural worries about the business have created an “attractive entry point.” But we think the ITV share price speaks for itself: while the company remains a favourite with the punters, there needs to be a fundamental revolution at the most basic level to turn this one around, and right now we’re not seeing it. Go buy Netflix instead.