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ITV boss questions value of loss making streamers....
i4u
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Chief executive of ITV.....
Another bubble that will burst?
Dame Carolyn [McCall] was speaking at a Royal Television Society event where there was some concern about the impact of a recession on the media. She was very interesting on a curiosity of modern capitalism: namely, why some companies making no profit (like some streaming services) have huge valuations, while others whose underlying business is reporting solid growth (like ITV) are seeing their share price fall.
Another bubble that will burst?
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The forecast is that Linear channels like ITV with outdated soaps will decline, and streamers with new programmes will take the audience. ITV might try and get streaming and Love Island, but capitalist investors would rather back the streaming companies to get the best return on share price..
Maybe because ITV's profits aren't actually showing solid growth.
Let's look at ITV plc's profits for the last 6 years per its statutory accounts, so the actual profit not the "adjusted" one excluding exceptional items - the problem being that there happen to be exceptional items every year so maybe people think they aren't that exceptional.
ITV plc statutory profit for the last 6 years:
2016 - £452m
2017 - £413m
2018 - £470m
2019 - £478m
2020 - £281m
2021 - £388m
Of course the last couple of years have been affected by Covid and we'll have to wait and see what the 2022 results look like.
But even allowing for Covid the trend of the above numbers including four years completely pre Covid doesn't really suggest what could be described as "solid" profit growth.
Globally, as far as I'm aware, they're all still increasing their subscriber base with the exception of Netflix who've lost a bulk of their licenced content to the new streamers.
Of course ITV will complain, these companies are eating their dinner.
ITV mainly focuses on middle aged women with the soaps, This Morning, Loose Women etc. That audience is in decline. Okay they have the Love Island franchise that skews young but not much else. If I was worried about my audience dying off then I would be more worried at the BBC.
You are already seeing the streamers starting to merge such as Discovery + Warner (HBO) and in Europe the tie up between Paramount + Universal (Peacock) + Sky. That is surely the future as long term you can't have more than a handful of mega sized streamers.
What will be interesting though is can the niche streamers survive. I think the really small with unique content for a particular audience will probably survive as can't see the US giants ever moving into that area as not mainstream. More thinking of the likes of Acorn and Starz. Okay they have big parents but will their streamers ever get to a viable size and make money that's doubtful.
It isn't just entertainment though as ITV also at risk on sports right. Okay on listed events they will get their share but other stuff over time likely to migrate to streamers unless the sport sees mainstream TV coverage is worthwhile for profile such as ITV paying to get NFL from the BBC but almost certainly at very little cost.
I wouldn't read too much into the tie up between Paramount and NBCUniversal, it'll never be allowed globally due to Paramount owning CBS and NBCUniversal owning NBC.
The deal Sky have with Paramount+ is indicative of the direction that Sky are heading in, similar to how they've aggregated subscription channels and packages for decades, they're now looking to aggregate all the streaming services.
Also isn't it part of BritBox, won't that be in competition with ITVx?
Is the way forward a niche portfolio of 'channels' that builds into an overall big audience?
It does seem strange how loss making streamers are valued more than companies actually making a profif, a case of fools rush in where angels fear to tread?
1. ITV do have channels and content that caters to a younger audience, but the bulk of young people aren't drawn to them in the same way they are the streaming services.
2. Again, it's clear that the likes of Disney, Netflix and Amazon are focused on growing their subscriber base and brand loyalty at a loss, investors aren't looking at a quick return, they're looking at a future where they've gained a monopoly on TV viewing at the expense of traditional broadcasters like BBC, ITV, Fox. Once they've established that monopoly and inflicted severe damage on the traditional broadcasters (loss of viewers, brand awareness, habits, ability to make expensive content etc) they will then increase the subscription prices further in order to make profits.
If they increased prices even more that would be 100% wrong even more so in a cost of living crisis
As far as the companies are concerned a price increase is only wrong if it cuts subscriber numbers enough to lose them money.
Anyway all their services are a very optional luxury not a necessity.
Netflix are profitable.
Their net profit was over $5bn in 2021.
Disney are increasing prices in the US to maintain the existing service I thought be end of year ?
They are increasing by IIRC around 30% to keep it advert free or retain existing price and get forced adverts.
Can do this as subscriber numbers still increasing so they can afford to lose some or get people to downgrade and they get the advert revenue.
Netflix with falling subscribers are taking a different approach of giving a few dollars off if you take the advert version. This was initially for US but they are quickly rolling out to UK and other major European markets. I guess this way they hope to keep customers who want a discount but stops them totally cancelling and they get the advert money to make up at least some of the shortfall in income.
I have also noticed that Amazon are increasing putting content on Freevee (or whatever the name of the advert support service is called these days) especially TV show boxsets rather than on Prime. This way they get advert money from anyone watching rather than roll up in Prime.
It seems to be fair amount of Warner Bros content getting added to it , Third Watch was added last week and Southland is added to Freevee on Friday , although Nip/Tuck is due to be added to Prime In 35 hours.
I thought Niip /Tuck was on Disney/Star.
Not on Disney+ , Warner Bros. Television own it, it's currently on StarzPlay I think.
Oh right I thought I had seen it on one of the streaming services. Thank you.
ITV's strategy mirrors Amazon's but also companies like Paramount which have both a SVOD service and an AVOD service and the rise of AVOD isn't due to the cost of living crisis but the fact not everyone wants to subscribe to multiple SVODs whereas a service like Freevee and Pluto which offers decent but not premium content can make money and be profitable.
Yes, but that has been obvious to everyone for a while. For me the bigger problem is how someone can become the chief executive of a public company but not know how the markets work.
And though it is already too late to prevent this being yet another repeat of streaming vs linear, it is important to remember that I.T.V. is a production company and distributor with multiple subsidiaries around the world. It is not just a broadcaster in the U.K. They are also a profitable company with a relatively small amount of debt compared, they just seem to be saddled with a whinging boss who complains about tame Twitter jokes let alone how financial markets work. That is not a reason to write off a successful company as failing.
Contrary to the negative responses by posters on here there are plenty of more knowledgeable people who share her view about capitalism.
It has been seen repeatedly since finance markets began whenever there is a boom in some new fangled area. Start ups with almost no assets are prized over established, profitable companies which have built up enormous assets over many years. The answer is greed - the promise of jam tomorrow over a sound investment paying a decent return. It is gambling, not investment. Like all gambling sometimes it pays off, other times it ends in tears. Only fools gamble that way - unless they can afford to lose or are gambling with other peoples money.
Carolyn McCall ran Easyjet before she came to ITV, she's know her stuff about business compared to keyboard warriors on here.
Indeed, and that is why she has the job and they don't!
Is running an airline the same as running a broadcasting company?
She spent almost four years as chief executive of Guardian Media Group between 2006-10. That was the period when they owned a portfolio of radio stations.
Profit before tax is subject to directors' decisions, such as property rental, programming investments and sports rights acquisitions. The fall in PBT for a company doesn't mean it's less successful.
If you ignore 2020 the turnover and balance sheet are going in the right direction:
https://markets.ft.com/data/equities/tearsheet/financials?s=ITV:LSE
One could no doubt write a whole book about how success is defined but in terms of financial measures (ie putting to one side things like social responsibility and other stakeholders) the ultimate has to be profit as that is what enables a company to pay dividends and generate value for shareholders.
Of course there are all kinds of other considerations - eg if a company is in its early stages or growing very rapidly then the current level of profits isn't so important. But ITV isn't in that situation - it's a highly mature, low growth business.
You say turnover is up and it is - but it's very slow growth - up from £3,064m in 2016 to £3,453m in 2021. So 12.7% cumulative over 5 years - that's just under 2.5% per year compound - so broadly simply in line with inflation, ie flat in real terms.
And that's before we factor in that some of that turnover growth has come from acquisitions of various studio businesses - so organic growth is actually lower than the above - and thus negative in real terms.
The increase in net assets simply reflects the fact that the company is making profits and a significant proportion of those profits has been retained within the business rather than paid out to shareholders (and there may have been other reserves movements of item which haven't gone through the P&L).
The big picture is that the last few years have been a difficult time for ITV and investors do not believe future prospects are particularly encouraging - and that's all reflected in a share price down 67% over the last 5 years. Of course share prices go up and down and markets can over-react but overall it's not a happy picture.