ITV's Grade seeks digital review as advertising revenue falls

Michael Grade, the ITV chief executive, warned yesterday that the company needs a swift resolution of the public service broadcasting debate in the face of a sharp decline in television advertising.

ITV's half-yearly figures, published yesterday, included a goodwill impairment charge of £1.6bn, a £35m cost-cutting programme likely to include job cuts, and a halving of the dividend – alongside predictions of a 20 per cent drop in ad sales next month.

Revenue was up 3 per cent to £1.03bn. Adjusted profits were down by 28 per cent to £91m – largely due to a £29m rise in ITV1's sports costs thanks to Euro 2008, according to the company. But inclusion of the massive goodwill writedown takes the company to a £1.53bn loss.

The problem is that the TV advertising market is starting to succumb to the wider economic gloom. So far this year, ITV has done reasonably well. Ad revenues for the first eight months were flat, compared with a 1 per cent fall in the market. But the horizon looks dark. The market will drop by 17 per cent next month, according to ITV, and the company itself will see a 20 per cent fall-off compared with last year's particularly successful September, buoyed by the Rugby World Cup.

The result is not just the devaluation of the broadcast business, but also a dividend slashed from 1.35p to 0.675p, revised targets in the high-profile turnaround strategy, and an extra £35m of savings to add to the £81m-worth of schemes already in place. But what ITV really needs is a change in its regulatory status as a public service broadcaster (PSB), says Mr Grade. Under the current arrangements, ITV's PSB obligations cost the group around £300m every year, in return for a free broadcast licence. But with digital switchover looming, the system no longer makes financial sense and Ofcom is reviewing possible alternatives.

Mr Grade denied that he was threatening the regulator but was adamant that a resolution is needed, fast. "We would prefer to retain PSB status but not at any price," he said.

"Ofcom understands our predicament, but does not quite understand the urgency. Never mind next year, we could do with it next month. There is an important connection between the goodwill impairment and the PSB review," Mr Grade added. "It is unarguable now that Ofcom needs to take quick action to redress the imbalance between the value of the licence and that which we are required to provide."

Notwithstanding the stalling ad market, and shares languishing at little more than a third of last autumn's price, ITV is holding its own – delivering 6 per cent more "advertising impacts" and maintaining an overall market share of 41.4 per cent. But while the group's management may say that September's declines cannot be extrapolated out to the fourth quarter, their strategy suggests otherwise.

"If this was a one-month blip, they wouldn't act this quickly to lower the dividend and take a goodwill impairment," Paul Richards, an analyst at Numis, said.

The only upside is the added weight given to discussions with Ofcom, said Mr Richards: "The pace of deterioration and halving the dividend highlight that this is not hot air from Michael Grade and shows how urgently ITV needs the process to go through."

The City remained broadly supportive yesterday, putting the 5.83 per cent share price fall down to rises in the wider market earlier in the week.

Simon Lapthorne, at Blue Oar Securities, said: "ITV is outperforming commercial rivals and ad revenues are flat, which is pretty good given the market's overall decline. Michael Grade is trying to make a silk purse out of a sow's ear."

Digital switchover playing havoc with broadcasters

The 2012 digital switchover, when analogue broadcasting will cease, is playing havoc with the economics of public service television.

Under current arrangements, the regulator gives the BBC, ITV and Channels 4 and Five free access to radio spectrum for terrestrial TV. In return, the public service broadcasters (PSBs) meet quotas for less lucrative programming such as regional news or UK-originated content, and the commercial channels also comply with advertising controls.

But as switchover nears, and viewers abandon analogue, the value of the PSB licence is declining and will, ultimately, be outweighed by the cost of the obligations. The question is both when the tipping point will be – ITV says as early as next year – and also what model is pursued thereafter.

The situation varies between the different organisations. Unlike state-owned Channel 4, publicly-listed ITV is at liberty to walk away from the PSB licence altogether. But even with analogue turned off, ITV will still need a licence for digital terrestrial broadcast. No free licence will mean negotiation with commercial multiplex operators, which is likely to cost in the tens of millions of pounds.

Ofcom's PSB consultation outlines four options. One involves all five PSBs, including ITV, remaining as licence-holders. The other three suggest mixed models with piecemeal competitive funding.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Media

Account Executive/Sales Consultant – Permanent – Hertfordshire - £16-£20k

£16500 - £20000 Per Annum: Clearwater People Solutions Ltd: We are currently r...

IT Application Support Engineer - Immediate Start

£28000 per annum: Ashdown Group: IT Software Application Support Analyst - Imm...

Senior Management Accountant

£40000 - £46000 per annum: Sauce Recruitment: Global publishing and digital bu...

Semi Senior Accountant - Music

£30000 - £35000 per annum: Sauce Recruitment: A successful, Central London bas...

Day In a Page

Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

Robert Fisk on Syria air strikes

‘Peace President’ Obama had to take stronger action against Isis after beheadings
Will Lindsay Lohan's West End debut be a turnaround moment for her career?

Lindsay Lohan's West End debut

Will this be a turnaround moment for her career?
'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

The follow-up to 'The Tiger Who Came to Tea'

Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

BBC Television Centre

A nostalgic wander through the sets, studios and ghosts of programmes past
Lonesome George: Custody battle in Galapagos over tortoise remains

My George!

Custody battle in Galapagos over tortoise remains
10 best rucksacks for backpackers

Pack up your troubles: 10 best rucksacks for backpackers

Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world