UK free-to-air broadcaster ITV has narrowly prevented a decline in its overall advertising revenue in 2012. The effects of a weak macroeconomic environment were exacerbated by unfavourable one-off events. Both the London Olympics and the Queen's Jubilee were largely broadcast on the BBC which negatively impacted share of voice (SOV) of ITV's family of channels.
ITV reported full year net advertising revenue (NAR) flat at £1,510m - exactly the 2011 amount. The broadcaster publishes TV and online NAR in an aggregate number. Its online NAR stems nearly exclusively from video. IHS Screen Digest estimates that in 2011, ITV made £29m in online video advertising and 39m in 2012. This means ITV's pure TV advertising revenues contracted slightly in 2012 by roughly 0.6 per cent. Yet, the broadcaster still fared better than the UK's overall TV ad market which was down 1 per cent in the same period.
ITV Family SOV was down three per cent in 2012, with ITV1 down 6 per cent and the digital channels continuing to perform well, up three per cent. ITV Family share of commercial impacts (SOCI) was down three per cent with ITV 1 down five per cent and the digital channels up two per cent.
Despite a flat advertising performance, ITV's total external revenues were actually up five per cent in 2012 to £2,196m. This was helped by the strong performance of non-advertising revenues which increased by 12 per cent to £1,036m. Over time, ITV has diversified its revenue streams to become less dependent on advertising. The share of revenues generated from other sources than advertising grew from 37 per cent in 2011 to 40 per cent in 2012.
ITV Studios, the company's production and distribution segment, also had a positive impact on non-advertising growth. Revenues were up 16 per cent to £712m, with supply to ITV's own networks up 20 per cent at £350m and external revenues up 13 per cent to £362m. Programme expenditure across its networks was up just one per cent to just over £1bn. This year, ITV said changes to its Champions League and FA Cup contracts would save £20m in costs and that overall it expects to spend £15m less on programming.
Three principal reasons are behind market growth and ITV's performance in particular. Firstly, the UK economy is holding up better than the Eurozone. Moody's recent downgrade of the UK may have made waves in the media, but is to have little impact on the real economy, and thus advertising in March. Secondly, the early Easter in 2013 helps to boost market growth in March. Thirdly, ITV specifically has benefited from a trading dispute between GroupM and Channel 4. The media buying group and the broadcaster could not agree on an advertising deal. Channel 4 had ceased to trade at a discount to ITV but doubts arouse over whether this was justified in terms of audience. GroupM had pulled all its bookings from Channel 4, worth about £250m in order to reach a better deal. The situation was resolved on 10 January and gave ITV a 1-2 per cent extra boost in January.
Despite a good start into 2013, ITV will face headwinds in Q2 due to difficult 2012 comparatives. Q2 2012 was a strong quarter for ITV helped by the European Football Championship and we expect ITV's NAR to contract between eight and 10 per cent in Q2 2013. Visibility for the full year 2013 remains low as macroeconomic uncertainty is creeping into advertisers' minds and budget plans. It was online video NAR which helped ITV post 2012 revenues exactly on the 2011 level. Without video, our calculation above has shown, TV NAR would have contracted slightly. Online video revenues are nowhere near linear TV NAR yet, contributing only 2.6 per cent to total NAR in 2012. Yet, with their share up from 1.9 per cent in 2011, online video revenues grew strongly in 2012. Key drivers were increases in long form video views, which reached 458m in 2012, and steady CPMs.
IHS Screen Digest estimates that ad-supported views on the broadcasters' ITV player platform (as opposed to views on Virgin Media, Lovefilm and other third party platforms) increased to approximately 275m views, a 33 per cent increase on 2011. Virgin's share of ITV's video views has declined by 10 percentage points, to 30 per cent. Growth in consumption has been led by mobile and tablet devices.
Having launched a transactional TV service in 2012, along with bolstering online performance through deals with paid-for OTT video services such as Lovefilm and Netflix, ITV is further diversifying its rapidly-growing online division away from video advertising revenues.