It's no small understatement to say ITV is in a real mess. Their annual programme budget for 2009 was £1billion. Their total advertising revenue for 2009 was £1.2billion. It's present market capitalization is, as of today, £2.04billion. OK, to break things down their annual spend on programmes is around half the value of the company. What do they get on this in return? A £105million pre-tax loss for the first 6 months of 2009 - and I am waiting to hear on the second 6 month period in the next few days - this doesn't look too good, does it? But what is the scenario going to be like in a few years time?
The background on ITV - they still the only channel for an advertiser to reach mass-market viewers, however one can't help wondering when this will end. Conceived through the merger of Granada and Carlton, things went off to a rocky start which appeared to be a TV massacre. Heritage names, such as Granada and Tyne Tees, disappeared overnight. The brand was quickly becoming badly damaged through numerous high profile disasters - the ITV Digital collapse a year before hardly inspired much confidence in the brand to investors and advertisers. Then in the height of the phone in scandals, ITV replaced the ITV News Channel with ITV Play - a channel devoted to phone in competitions. You wonder who was making these decisions and whether they fully realized the implications of this.
I worked on the ITV merger, especially on the ITV News at Ten relaunch - the history behind the previous 50 years of news coverage was awe-inspiring. The footage on the tapes from the Vietnam war, the moon landing (note to Americans: this REALLY did happen...),Locherbie and so on was simply priceless. I watched much of it in complete silence - especially as I had the 'raw' footage and not the edited reports so got the full effect of these emotional pictures. You can't help and think back to what ITV was back in the day. Just think back to Spitting Image, Inspector Morse, The Benny Hill Show, Prime Suspect, Cracker, World In Action, The Avengers, Rising Damp, and now The South Bank Show were all ITV made programmes - alas no more. Fine Ed, things move on and channels evolve, no? Well, yes, channels do evolve but I think ITV's movement into their current programming strategy of celebrity-obsessed shows has done so much damage to the ITV name I wonder whether they can ever recover.
ITV's investments have been questionable to say the very least. They bought the Friends Reunited website for £175m in 2005 and in 4 years did pretty much nothing to it and then sold it for £25m this year. Whilst Rupert Murdoch bought MySpace for $580 in the same year it is clear to see who got the bargain and who overspent on a major scale. The problem with Friends Reunited was it was a website with a huge number of people registered to basically brag about how rich and successful you were now compared to 20 years ago. They made their money from charging you to email your friends which put people off from the start. So the majority of the registered members only ever browsed, infrequently at that, and never spent any money. ITV had a huge database of relatively social-savvy customers but never really used this to their advantage. They could rebranded Friends Reunited as a more Facebook-style site and kept people on the site for longer and incorporated programmes. But they didn't - the most drastic thing they did was to remove the pay wall so people could email for free. By which time Facebook and MySpace have already made deep inroads into the online social networking market and gave no-one a reason to go back to Friends Reunited. Just the logo alone put you off for life:
Digital switchover is already underway and this will make before long ITV just one of many channels available to the 23 million households in the UK. When digital switchover is complete I wonder how many of the viewers will migrate over to the additional channels? The problem ITV will have is that viewers buy into brands - they know what to expect - you want news you put Sky News on, you want a movie then Film 4 will sort you out - you get my drift. ITV is very dependent on a handful of shows which give them both ratings and newspaper column inches - The X Factor and Coronation Street being the obvious two. But in a multichannel world how would things change? Well I'd expect Coronation Street would still be there will healthy ratings and make them a good profit. However The X Factor's future is less secure on ITV. Unfortunately for ITV The X Factor format is owned by Simon Cowell who could sell it to Channel 4, Five, or even Sky, so you can see how badly this would affect ITV should it happen. The point I am making is that the value in ITV is decreasing so much because the shows they owned and created are few and far between when we look back to it's glory years. When we are getting used to using catch-up services such as the BBC iPlayer and You Tube to get our TV content it will be harder for ITV to get their new shows in front of the eyes of their viewers as people are more discerning on how they spend their time. The likes of Virgin and BT Vision are already providing catch-up and VOD through the TV so the warning signs will already be flashing over at ITV's South Bank HQ as their shows start to decline at an alarming pace. Less viewers means less advertising rates can be charged onto advertisers, which in turn means less money is reinvested into new programmes and risk-taking will become a thing of the past. Everything made will be aimed to suit their advertisers and not their audience.
It's all very negative so far but there is a ray of hope. After many years of lobbying, first started by Charles Allen, the government gave in and allowed product placement making a very major U-turn on the issue. The bottom line really is that without product placement ITV would have no chance of surviving in the digital-only marketplace. The bill is still being amended and will exclude children's programmes but will be very radical in the way we watch ITV in the future.
It is expected that product placement will be worth around £30million a year to ITV and therefore will be something they simply can't do without. But what will it really be like? Well have a look at American Idol in the US:
Advertisers such as Coca Cola, AT&T, and Ford are paying up to $35million a season each to be included in American Idol. The tune is clearly being played by the advertisers here and Fox, the US network airing the show, is clearly delighted with this arrangement. The programme will be aimed so you can fit more sponsor messages around them in future - thus affecting the credibility of the programme. I think it's a real shame that this had to happen as a viewer you want to know when you are being sold things and when you're not - product placement will make it much harder to actually tell the two apart now.
But with catch-up services and PVR's zipping through the commercials becoming everyday items in households nowadays along with the households with 5 channels being confined to history it's very clear that ITV needs a new source of income. And fast. Perhaps, just perhaps, product placement can save them...or is it just delaying the inevitable? With their share of viewership in an all-time low and fewer people watching the ads something has to give. Whatever will happen, only time will tell. This is going to get very interesting...