Grade insists there is no sign of an advertising downturn at ITV just yet

Michael Grade has assuaged fears that fragile consumer confidence has derailed ITV's recovery, arguing that there is as yet no sign of an advertising downturn and that the broadcaster is finishing the year with a bang as ratings at ITV1 continue to improve.

Mr Grade, who jumped ship from the BBC to lead ITV's recovery at the start of the year, said: "ITV is finishing 2007 strongly... and we have no evidence of advertiser demand weakening. Our focus for 2008 is on implementing the turnaround plan set out in September and maintaining the positive momentum in viewing performance."

Confidence in ITV's recovery has taken a knock over the past few months as a spate of profit warnings from High Street retailers and the continued fallout of the credit crunch has triggered concerns of an advertising slowdown. Commercial free-to-air broadcasters are highly exposed to a downturn in advertising and, despite its robust performance over recent months, analysts said that the risks to forecasts from a consumer slowdown are increasing.

The company's share price has fallen nearly 25 per cent over the past year on fears of an advertising downturn. The stock has also been plagued by concerns that the regulator is set to force Sky, the broadcaster's largest shareholder with a near-18 per cent stake, to sell down its holding due to concerns over its influence on its rival. If Sky is forced to cut its stake to around 7 per cent as is rumoured, it would create an overhang of around 400 million shares. The Competition Commission is set to make its recommendation to John Hutton, the business and enterprise secretary, imminently with publication of its findings due to be published next week.

Yet despite its depressed share price and the recent publication of more details related to the phone-in scandal, ITV's operational performance has vastly improved under Mr Grade's leadership. In September, the former BBC and Channel 4 executive, unveiled a back-to-basics strategy that pledged to restore the company's peak-time lustre by improving its content, particularly in drama and comedy, while bolstering its production business by snapping up independent rivals. He also pledged to continue to invest in digital channels and the online business.

The strategy was greeted with a lukewarm response at the time but ITV's performance over the past six months has continued to improve. Net advertising revenue for 2007 slipped less than 1 per cent compared to an almost 9 per cent decline in 2006 with revenue derived from digital channels rising 32 per cent to over 200m. Its digital progress helped offset a 4 per cent revenue decline at the company's flagship ITV1 channel, although that was a vastly improved performance compared to 2006 when advertising sales collapsed 12 per cent.

ITV also reported its best share of commercial impacts a measure for gauging how effective a broadcaster is at drawing viewers to the commercials it shows for four years, reflecting a slowdown in digital fragmentation and improved on-screen product according to Omar Sheikh, an analyst with investment bank Dresdner Kleinwort, who expects the positive trends to continue into 2008. The analyst said he expects the impact of Mr Grade's new programme initiatives to kick-in during the first three months of 2008 coupled with the continuing rise of Freeview.

Mr Grade said that "late money still entering the market" had led to ITV1's advertising revenue increasing 2 per cent in November. As a result, advertising revenue should be flat in the second half of the year, a much better performance than had been expected. Mr Grade said: "ITV has made measurable progress during the course of 2007. On-screen, ITV1's performance has been much improved."

Despite its flagging position last year, ITV has outperformed its commercial rivals Channel 4 and Channel 5 in 2007, boosted by a strong sports line-up, including the Rugby World Cup final, the year's highest rating show on any channel. The continued popularity of Coronation Street and X Factor has shored up ratings at ITV1 while ITV2 benefited from the high-profile Billie Piper vehicle Secret Diary of a Call Girl. ITV2 outperformed Channel 5 in attracting 16-34 year old viewers a key market for a full calendar month for the first time. The company also felt the benefit of its investment in relaunching its ITV.com website. The site had 6,000,000 unique users in November a 60 per cent rise since the revamp.

ITV also revealed plans to introduce more advertising-funded content on its Friends Reunited social networking site, a hint that it may look to move away from its subscription-based model on the back of the success of advertising-funded sites such as Facebook.

Grade's key lieutenants

Michael Grade has assembled what he calls "a formidable senior management team" to drive the broadcaster's recovery from the dark days of 2006 when his predecessor Charles Allen was forced out of the underperforming company. Mr Grade's reputation alone helped restore confidence that ITV could regain its lustre but a series of high-profile appointments to bolster ITV's ranks has helped banish the perception of ITV as a sinking ship. His biggest coup was appointing Dawn Airey, the highly regarded former Channel 5 CEO who went on to become managing director of Sky's channels. Ms Airey, who joined in October as head of global content, is expected to breathe more life into the business. He has also drafted in the ex-Chime CEO Rupert Howell as head of brand and commercial activities, and former Downing Street policy adviser Carolyn Fairbairn, who was previously head of strategy at the BBC where she led the development of Freeview. Mr Grade has also retained the services of its chief operating officer and finance director John Cresswell, the former Granada. Most surprising was that Simon Shaps, director of television, stayed given the criticism levelled at ITV's content strategy prior to Mr Grade's arrival.