Market Insight

ITV Q4 outlook for ad spend highlights market frailty

December 11, 2018

Ryan Doherty Ryan Doherty Research Analyst, Advertising, IHS Markit

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UK commercial free-to-air broadcaster ITV expects its fourth quarter ad revenue for 2018 to fall 3%, which it has attributed to economic uncertainty associated with the protracted Brexit negotiations.

ITV posted a 2% rise in total ad sales in the nine months to 30 September 2018 and said its overall performance had thus far been in line with expectations. External revenue rose 6% to £2.26 billion during the period, supported by a 10% rise in ITV Studios revenue to £1.11 billion. Meanwhile, Broadcast & Online revenue was up 2% to £1.51 billion.

However, an updated outlook for the final quarter of the year suggests net advertising revenue will be broadly flat in 2018, dampening expectations about the overall resilience of the UK TV ad market.

Our analysis

The UK linear TV ad market is showing the clearest signs yet of a Brexit and digitally disruptive-driven disintegration. ITV’s advertising revenue, which includes linear channels as well as online VoD and sponsorship, grew 2% to £1.29 billion during the first nine months of 2018. While linear continues to contribute the bulk of ad spend, growth over this period was driven by online advertising soaring 43%, suggesting a decline in linear ad spend.

The fact that ITV’s net advertising revenue is expected to be flat in a year of buoyant ad spend drivers like the FIFA World Cup and Love Island, which lifted its share of overall viewing to a 10-year high, highlights the extent of economic and digital disruption on the once-dominant linear TV market. These struggles have ramifications for the overall market, given that IHS Markit estimates ITV had a 37% share of net advertising revenue in the UK TV ad market in 2017.

Despite the anaemic outlook, there have been some bright spots for ITV of late. ITV’s direct to consumer ad revenue rose 41% over the first half of 2018, as direct to consumer brands continued shifting toward traditional broadcasters to bolster awareness. However, as Brexit enters its crunch phase, continued ambiguity threatens to hamper economic growth and quell large-scale ad campaign spend. This type of brand building is essential to the traditional TV ad pot.

Broadcasters’ distress is likely exacerbated by ongoing competition from the digital behemoths but increasingly from regulatory issues as well. For instance, tightening restrictions on gambling ads could further impede UK TV ad spend from 2019 onward. The ongoing downturn on the UK high street is another cause for concern as scrutiny over TV advertising budgets intensifies. To counteract these trends, ITV is looking to its online platforms to occupy a greater share of ad space and the success of ITV Hub has been encouraging. During the first nine months of 2018, online viewing on ITV Hub spiked 37%, compared with a 4% rise in total minutes viewed across ITV Family. ITV has also moved into the subscription market through ITV Hub+, the ad-free tier of ITV Hub. Plans for a new SVoD service in 2019 to rival Netflix, whether too late or not, signal a clear intent to move further away from its broadcast ad model.

The softening linear market is driving diversification among other UK broadcasters too. Sky’s targeted ad platform, AdSmart, was credited with driving a 6% rise in ad revenue for the broadcaster over the 12 months to June 2018. Channel 5 has joined the platform to help modernize its own ad model. Sky is also partnering with Netflix to drive monetization through a combined subscription service. Meanwhile, Channel 4’s commitment to programmatically-led digital advertising has also seemingly inspired ITV to focus on addressable TV within ITV Hub.

UK broadcasters are also looking more to sponsorship of their digital services for growth. In March 2018 ITV struck its first sponsorship deal for ITV Hub, partnering with Domino's. A range of new sponsors like Missguided and Samsung were vital to capitalizing on Love Island’s surging popularity among audiences in 2018.

IHS Markit analysis of the UK TV advertising market indicates revenue declined 2.4% in 2017. Growth is forecast to return at 1.7% in 2018, largely due to the FIFA World Cup and the digital innovation that the leading broadcasters have begun to embrace. Additionally, despite widespread economic unrest, UK GDP grew 0.6% in the third quarter of 2018, above Germany, France and Italy. This suggests a resilience that UK broadcasters can lean on but growth seems confined to VoD as the linear TV ad market’s demise continues. 

Geography
UK
Organization
Channel 4 Channel 5 ITV Sky UK
Research by Market
Media & Advertising
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