Broadcaster ITV needs to do more than remain part of the furniture

Director Kenny Leon says that film is art, theatre is life and television is furniture.

ITV demonstrates his point, if only because the broadcaster’s shares have been as difficult to lift as a wardrobe. Wednesday’s opening price of 124p was identical to the average value in February 2004, the month of its creation via the merger of Carlton with Granada. The stock is down by half versus its twin peaks in the 2000 dotcom boom and in 2015, when stakebuilding by Liberty Global stoked hopes of a bid that never arrived.

Reasons for its humdrum performance are well known. Successive ITV managements have failed to stem a defection of viewers to pay-TV platforms and online, which inspired countless eulogies for terrestrial free-to-air television. Heavy investment succeeded in increasing studio production to about 38 per cent of group revenue but has failed to unshackle earnings growth from the cyclical tides of the advertising market.

There was too much interference in ITV’s latest update on Wednesday to make a case for a turnround. Business was slow in the first quarter but will surge through the summer on the return of Love Island and Uefa’s delayed Euro 2020 football tournament.

Company guidance was for a year-on-year jump of between 85 and 90 per cent in advertisement bookings for June. Such figures need context. Last year’s abrupt freeze of advertising budgets at the height of the pandemic meant ITV barely broke even in the corresponding quarter last year, when the shares were about half their current level.

Sustainable trends are no easier to pick out of the first-quarter results. A 1 per cent improvement in viewing time across ITV’s channels was a tad underwhelming when stay-at-home orders at the start of the pandemic meant time in front of TV sets rose by as much as 20 per cent. Love Island’s cancellation for the winter season meant viewers were lost to rivals both online and for ITV’s lesser channels. There was nothing new for Britbox, its lossmaking streaming joint venture with the BBC that is rolling out internationally after a slow start in the UK.

Much more important are the longer-run trends, which show the truth in the furniture analogy. Management does a lot of heavy lifting for very little movement.

The total share of viewers tuning into ITV channels has gradually improved since 2015 as households swapped multichannel subscriptions for on-demand streaming services, which tend to require more thought about what to watch. And while total viewing figures are likely to revert to the downward path they had been tracking between 2010 and the first lockdown, advertisers appear more willing than media pundits to recognise that Coronation Street still gets more viewers than YouTube.

Thinkbox, the marketing body for UK commercial television, estimates that the average viewer consumed 316 minutes of media each day last year, up from 282 minutes in 2019. Broadcast TV made up nearly 67 per cent of the total, versus 13 per cent for YouTube and 11 per cent for subscription video-on-demand services such as Netflix.

Such slow declines give Dame Carolyn McCall, ITV’s chief executive, time to bulk up the digital and studios businesses. A newly formed venture capital arm with investments in menswear brand Spoke and location service What3words suggest some imagination in how to solve the problem, albeit with an unfortunate echo of its 2005 purchase of defunct social media website Friends Reunited.

But investors should not ignore all the heavy lifting. ITV shares can look deceptively cheap because headline numbers skip over Britbox losses, pension costs and earn-out payments for acquisitions.

Another complication is management’s preference for a profit measure that obscures persistent restructuring expenses. Barclays analysts estimate that since 2011, ITV’s adjusted measure of annual pre-tax profit has inflated its reported figures by 27 per cent on average.

Add in Covid-19’s distortions and ITV’s quarter-by-quarter numbers reveal very little. Its continued relevance depends on managing industry upheaval and co-operation. The main selling point for the moment is a brand that for many households remains part of the furniture.