ITV bosses yesterday fleshed out their five-year plans to dramatically overhaul everything from programming and online delivery to the broadcaster's very culture, pledging to tackle decade-long issues and spark the group's "rusty machinery" into action.
Following a root and branch review of the entire operation, chairman Archie Norman and chief executive Adam Crozier used yesterday's half-year results to unveil their so-called Transformational Plan, as they seek to make the company "fit for purpose". The strategy includes boosting revenues from existing broadcast business, driving new revenue streams, developing its content arm and building a strong international content business.
Mr Norman, the former head of Asda, who joined the broadcaster at the turn of the year, said: "We want and need to be Europe's fastest changing media company."
Mr Crozier, who arrived from Royal Mail several months later, said the transformation plan would help shape "a lean business that creates world class content executed over multiple platforms, which can be sold globally". The group also took a swipe at previous management, saying that 90 per cent of underperformance over the past 10 years had been self-inflicted.
"For the past decade ITV has not faced up to the challenges presented by the rise of internet-based platforms, the continuing growth of pay TV and subscription services and the globalisation of content," Mr Crozier said.
Lorna Tilbian, analyst at Numis Securities, said the new management team had "accurately assessed the 'organisational ineffectiveness' which has blighted ITV over the past decade and have laid out a coherent strategy on how to change this."
Mr Crozier and Mr Norman said it was in a good position to introduce a new strategy, as market conditions had improved in the first half. ITV posted a pre-tax profit of £97m for the first six months of this year following losses of £105m a year earlier. This growth was driven by a rebounding advertising market, with ITV ad revenues 18 per cent higher year-on-year, outpacing its rivals. Mr Crozier said the group had been particularly strong in June because of a successful World Cup. The group also revealed it had reduced net debt by £175m to £437m following strong operational cashflow.
Yet, Mr Crozier was determined not to let the group's return to form derail its restructuring plan. He said: "The good financial performance has enabled us to reduce our debt significantly, but does not disguise the underlying challenges we face. We are under no illusion that ITV needs to change substantially."
He said the clues to the issues facing ITV could be found in its interim results, with certain trends "pointing to long term issues". The most predominant was the dependence on TV advertising "in a stagnant market". This comes as ITV continues to lose audience share with the fragmentation of the market. In the first half the share of TV viewers watching ITV1 reduced 5 per cent. Mr Crozier said: "I've developed a very clear idea and view of the realities of the challenges facing ITV. I believe it is time for it to face up to those issues. Most have been around for 10 years, but they are now gathering pace." Currently, 74 per cent of revenues come from TV advertising. Mr Crozier intends to bring that down to 50 per cent. Ms Tilbian said the strategy "is a stretching target and therefore rate the chances of the new management team being able to deliver this as evenly balanced".
One of the core steps in diversifying its revenues is a move to put some of its channels on pay TV, which it announced yesterday. ITV had its fingers burnt when it previously tried to launch a pay TV operation, initially as ONdigital and rebranded as ITV Digital in 2001. Its latest strategy, announced yesterday, "is completely different," according to Toby Syfret of Enders Analysis. Instead of launching a pay platform competing with BSkyB, it has signed a deal with the satellite group to put the high definition versions of its digital channels ITV2, ITV3 and ITV4 on its platform. Mr Crozier added: "Pay television has seen continual growth over the last decade and this deal is a great example of how a new, subscription-based launch can complement ITV's existing free-to-air channels." They will be bundled with Sky's channels and ITV will receive a carriage fee.
Mr Crozier revealed that this was just a "toe in the water" of pay TV content, adding "we need to do more on pay". He said: "The numbers add up, this will be incrementally profit generating from day one."
The pay TV market is worth about £6bn, "and ITV's share is precisely zero," Mr Crozier said. He revealed that the deal was not made on an exclusive basis and left the door open for talks with other pay TV providers, including Virgin Media.
Another crucial area for the group to develop revenues is online. ITV.com currently brings in just 1 per cent of revenues and video views on ITV.com fell 14 per cent in the first half of 2010. "Some of that is the Subo effect," Mr Crozier said over the previous year's interest in the Britain's Got Talent star, but he added: "We are still punching below our weight". He continued: "We were weak on technology with no clear platform strategy," but ITV is now looking at strategies including micropayments in an attempt to monetise its online content. "We need to transform ITV.com. The viewer experience is not as good as it should be," Mr Crozier said.
ITV yesterday also announced plans for a £75m fund to invest online as well as its digital channels and content for the next three years. The sum is not part of its network programming budget, which is set at about £800m. ITV is keen to reinvigorate its programming and turn around the 14 per cent drop in revenues at ITV Studios. It has high hopes for dramas Downton Abbey and Bouquet of Barbed Wire, as well as the 50th anniversary of Coronation Street and Champions League football. Yet ITV's biggest brands behind Coronation Street – Emmerdale and I'm A Celebrity... – "are ageing" the group admits. ITV Studios share of output on its flagship channel makes up 47 per cent, down from 65 per cent just five years ago. "The creative process hasn't been working as well as it should be," Mr Crozier said. "There are no quick fixes. It will take time." ITV has brought in Kevin Lygo from Channel 4 as managing director of ITV Studios to reinvigorate the content. ITV is also looking to build a "strong international content business," the chief executive said.
It plans to expand from seven countries to 17 in the next five years. "We're very clear on the challenge, now is the time to face up to it. We have to get into the growth markets," Mr Crozier said.
Most analysts have backed the plans drawn up by management and Mr Norman added that with the main shareholders, "the reaction has been almost invariably enthusiastic".
Mr Syfret said: "They are targeting the right areas and are taking a clear, sensible approach, but they still have it all to prove."