Advertisers are concerned about the performance of the UK economy, and that’s having a knock-on impact on broadcasters. Chief executive of ITV Carolyn McCall has blamed the stagnancy of the UK economy – and the resulting weakness in the broadcaster’s advertising sales for 2023 – on a lack of government initiatives.
Speaking at a Royal Television Society conference yesterday (21 September), McCall said: “It’s proving to be quite a hard second half. Advertising revenue will be a drag for us so all our results will be dragged down. The UK economy is not doing very well.”
It is a change in tone from July, when McCall stated she was optimistic about the broadcaster’s prospects for the second half of 2023.
Consequently, despite the broadcaster’s success in building digital revenue around its flagship digital service ITVX, the outlook for the rest of the year looks bleak. Despite the Bank of England unexpectedly holding interest rates at 5.25% and a slight rebound in consumer confidence in September, the ongoing cost of living crisis is negatively impacting advertiser assuredness at a time when ROI is a priority.
In its H1 results released in June, ITV stated that it was confident about the strength of its linear channels due to tentpole events including the Women’s World Cup, Rugby World Cup and the return of Big Brother. Analyst Alex DeGroote says that will help keep viewing figures – the bedrock upon which the advertising proposition is based – high, but won’t disguise wider issues.
“Total ITV viewing is down 1% in H1 with growth in ITVX viewing largely offsetting decline in linear viewing. ITVX is performing well. But it cannot mask overall weakness.”
DeGroote also notes that, with the sole exception of travel, every category of advertiser was down in ITV’s H1 results, suggesting this is universal rather than indicative of a slowdown in any single sector.
While advertising around those events is likely to contribute significantly to the H2 results, it is apparently failing to buoy up advertising on linear channels overall.
Enders Analysis’s Tom Harrington explains: “ITV can’t really shift ad demand itself but what it can do is make its advertising offering as attractive as possible so it can exploit advertisers when the winds change – something it is generally working through with Planet V [ITV’s addressable ad platform] and CFlight [measurement] and a better BVOD [broadcaster video-on-demand] offering which can bring better targeting and addressability than linear TV.”
ITVX and digital revenue
ITVX, by contrast, is continually cited by the broadcaster as delivering an uptick in both advertising revenue and brand equity, in line with other OTT services launched by linear broadcasters.
As Harrington explains, however, this is something of a double-edged sword for the wider ITV business. “Digital revenues are unsurprisingly something that ITV really highlights, and they are increasing but that’s somewhat illusory given a lot will be spent moving from linear, while the actual allocation of payments between digital and linear airtime can be slightly opaque depending on the structure of the deal. But even with that, digital growth hasn’t recently balanced linear losses.”
While analysts are reasonably optimistic about the performance of commercial television from 2024, it will be a bleak winter for ITV and its competition before then.
PwC’s media and entertainment leader Sam Tomlinson explains that while the sector is looking positive in the long term, it needs to push through that weakness. “I’m relatively optimistic about TV advertising in the UK. Yes, it will fall in 2023, but that is by comparison with a superb year in 2022, and PwC’s forecasts have TV advertising in the UK then returning to growth in 2024,” he says.
“An increasing recognition of the value of premium, brand-safe, fraud-free advertising environments coupled with the growth in targeted TV advertising mean the sector will remain healthy, in our review.”
It was a challenging advertising environment even when ITV reported positive results back in its H1 2023 results. Now, with McCall citing the UK government for effectively letting broadcasters fend for themselves in a tricky economy, it is a more challenging environment still.