How ITV got its X factor

A string of blockbuster programmes and an advertising revival is helping the broadcaster transform its fortunes, reports Nick Clark

ITV was in buoyant form yesterday as the latest series of I'm a Celebrity ... Get Me Out of Here! attracted 12.9 million viewers, the highest opening audience in the show's history. The group also published numbers that showed the management team's "relentless focus" on transforming the broadcaster had begun to pay dividends.

The shares rose 3.3 per cent to 65.75p as ITV reported rising revenues and falling debts and provided a solid update on the five-year "transformation plan" launched last year. Despite tough economic and market conditions, revenues rose 4 per cent in the first nine months of 2011 to £1.5bn over a year earlier.

Adam Crozier, the former head of Royal Mail who joined ITV in April last year, said yesterday that the focus on overhauling the company "is now impacting positively on our results".

"We are still in the early stages of our five-year transformation plan which we are on track to deliver, and we remain optimistic about ITV's prospects in the medium to long term," he added.

A spokeswoman for ITV said: "We are pleased with the progress of the plan, although it is still early on." The plan has four key parts: improving onscreen performance, cutting costs, boosting its online operation, and sorting out its production arm, ITV Studios.

Despite diversifying its revenues, ITV has fought hard to maintain onscreen market share. The proportion watching ITV1 fell slightly to 15.6 per cent as viewers flocked to perennial favourites Coronation Street, The X Factor and Britain's Got Talent as well as Downton Abbey and the recent Rugby World Cup in New Zealand. Paul Richards, an analyst at Numis Securities, said: "The company has been successful at improving its onscreen performance. The cost base is now fit for purpose and online is a work in progress."

The company expects to be net cash positive at the end of the year. Debts stood at £612m in January 2010.

Advertising still makes up about 80 per cent of group revenues, and management expects the market for the full year will be up 1 per cent. The outlook remains uncertain.

Mr Crozier said: "There are two big things on the agenda: content and technology. We want to own more of our own content and we want to exploit it along different platforms and internationally." While shows such as The X Factor and Downton Abbey are hugely popular, they are made by independent producers which take much of the profits.

This has meant refocusing on ITV Studios. The company brought in Kevin Lygo from Channel 4 last year to oversee the creation of more homemade hits. He has brought in new talent and commissioned a series of pilots. Mr Crozier said yesterday: "The new ITV Studios management team is delivering ahead of expectations, fuelled by our continued investment in revitalising the creative pipeline, with particularly strong growth in our international business."

A crucial part of the strategy is to boost the sale of content overseas. Mr Crozier pointed to a range of new series that have been picked up around the world. ITV Studios has made 89 commissions, 40 of which are international. Among the most notable are a US remake of Prime Suspect, which has been sold to 30 countries, and Julian Fellowes' new drama, Titanic, which has been sold to 57. In the first nine months of the year, revenues at ITV Studios grew 9 per cent to £224m, from £205m a year earlier. A spokeswoman said: "Content is huge for us. It is key to overseas success."

Mr Richards at Numis said: "ITV Studios hasn't got there yet. At the time the new management came in everyone said it was the difficult one to pull off." He added: "The company does have really good people."

Another crucial aspect to the company's overhaul is the online operation. ITV.com saw unique users increase 18 per cent to 10.6 million, and views of its long-form video rose 62 per cent to 262 million. Mr Richards said: "Many media companies around the world were making better progress than ITV, so it was an obvious move to follow them." Insiders said online was making huge progress. ITV also said it had seen 2 million downloads of its iPhone app over the past four months.

The company is trialling new business models in its search for diverse revenues. The spokeswoman said: "We will be exploring how customers want to engage with our content and what they may be willing to pay for in terms of additional access and content."

ITV put three HD channels on to Sky's pay-TV platform and is to trial micropayment systems. It has moved into product placement, although that remains small as it is heavily regulated. A Nescafe coffee machine appeared on This Morning, and a Nationwide ATM is due to appear on Coronation Street.

Mr Crozier refused to get carried away: "We remain cautious on the outlook for 2012; quarterly revenue trends are likely to follow a different pattern to 2011 with tough comparatives continuing into the first quarter before easing from the second quarter onwards."

A year and a half into the new regime, the company is in a stronger position. Mr Richards said the new management team was fortunate to join the broadcaster shortly before a huge recovery in the advertising market, but added: "So far they have executed well."

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