ITV profits rise as broadcaster plans streaming service launch

ITV has announced it will launch a new streaming service to battle the growing threat of Netflix and Amazon as the broadcaster reported that its earnings have grown slightly within the past year.

Total group revenue for the group rose 8% to £1.8bn, with profit before tax growing 2% to £265m from £259m last year. Meanwhile, ITV Studios brought in decent returns, as revenue increased 16% to £803m.

Overall, the broadcaster reported an 8% rise in total revenue for the six months to June 30 to £1.8bn.

The new initiative will involve a £60m investment in the business over the next three years that will in part help ramp up its UK and global production, and create a “direct to consumer business”.

The plan is part of ITV’s cost-cutting drive to save up to £40m by 2021, with £15m of those cost cuts set to take place next year alone, as recently appointed chief executive Carolyn McCall unveiled what she called a strategy “refresh”.

In a statement McCall said: “ITV will be more than TV – it will be a structurally sound, integrated producer-broadcaster where we aim to maintain total viewing and increase total advertising revenue.

“It will be a growing and profitable content business, which drives returns; and it will create value by developing and nurturing strong direct consumer relationships, where people want to spend money on a range of content and experiences with a really trusted brand.

“We will deliver this strategy by building greater capability in data, analytics and technology as well as developing the great creative and commercial talent ITV already has.

“Executing the strategy will enable us to continue to deliver sustainable returns to our shareholders.”

Analysis: Laith Khalaf, Senior Analyst, Hargreaves Lansdown

It’s been a sizzling summer so far for ITV. The unlikely bedfellows of Love Island and the World Cup have kept the nation’s eyeballs glued to their screens, and those important advertising pennies rolling through ITV’s door.

A rise in advertising revenues is a pretty good result given the weak economic environment, though while producing winning shows like Love Island is very much in ITV’s gift, the World Cup comes round but once every four years, and a strong England showing even more infrequently.

The advertising world itself is of course changing, with the likes of Facebook and Google eating the lunch of more traditional media outlets like ITV. That explains why ITV has invested so heavily in producing killer content which can then be sold to the highest bidder, such as the Voice, or Poldark. This strategic shift now means that ITV is becoming less dependent on the vagaries of the advertising market, with more than half of revenues coming from other sources.

Of course, the content market is not without competition either. A little known US company called Netflix intends to spend around £10bn on content in this year alone. For the same amount Netflix could buy ITV, which is worth £7bn, and have enough spare change left over to trot out a few Golden Globe winning TV shows.

The recent battle for Sky has increased speculation that ITV could become a takeover target. With a 10% stake in ITV, and £16bn coming its way from asset sales, Liberty Global is the obvious suitor. The industry is in a state of consolidation with distributors and content producers teaming up to ward off the existential threat posed by the mighty Netflix, so there are grounds to believe ITV might be on the radar of one of the big players in the market.

Liberty has a pretty high debt pile however, so may well use the proceeds of its sale to reduce borrowing, while the political and economic uncertainty emanating from Brexit is another reason overseas bidders may be put off acquiring UK assets right now.