ITV share price’s 42% plunge symbolises market oversaturation

The UK’s tightening monetary environment and Russia’s war in Ukraine are acting as general depressant factors on all UK companies. But ITV (LON: ITV) shares owe most of their fall to last week’s announcement that the media company is significantly upping investment in streaming.

ITV share price: full-year results

The FTSE 100 company’s total external revenue rose 24% to £3.453 billion year-over-year, while profit before tax rose from £325 million to £480 million. And EBITA was up 42% to £813 million, driven by ‘the strong recovery in the advertising market; resumption of productions; and tight cost control.’ Meanwhile, net debt fell from £545 million to £414 million, as the company maintained strong liquidity of £1.5 billion.

Total advertising revenue rose by 24% to its highest in ITV history, within which video on demand advertising rose 41%. Moreover, 93% of the top 1,000 commercial broadcast programmes on TV were on ITV in 2021.

Meanwhile, streaming viewing hours were up 22%, as monthly active users rose 19% to 9.6 million. ITV boasted this now makes it ‘the largest ad funded premium streaming service in Europe,’ having delivered a 28% compounded annual growth rate since 2018.

Accordingly, the company plans to ‘supercharge our streaming business,’ with ‘key’ new service ITVX expected to launch in Q4 with 15,000 hours of content. ITV is hoping to ‘at least doubling digital revenues to £750 million and enabling us to double streaming viewing, double MAUs and double subscribers by 2026.’ Viewers will be able to choose between a free ad-supported version or paying a premium to watch ad-free.

Saturation, consolidation

ITV is currently making a ‘significant incremental investment in our digital-first content budget;’ investing £1.23 billion into streaming in 2022 and £1.35 billion in 2023. As 13% of revenue came from streaming in 2021, up from 10% in 2020, ITV argues it has ‘a clear ambition and strategy to be a leading streamer in the UK and an expanding global force in content.’

However, Berenberg analyst Sarah Simon believes ITV is ‘spending more because they’re losing eyeballs,’ arguing that ‘you’ve got Netflix, Amazon, Comcast, Discovery+, Facebook Watch, YouTube — there’s just so much.’ And ITV’s investment case is that it can compete with these titans of entertainment.

In the early days of Netflix, it offered virtually every desirable show or film as studios had no other option but to lease out their titles to the pioneer. But now, sought-after content is spread out amongst a dozen providers. And a global cost-of-living crisis is squeezing household budgets.

This is inevitably creating problems. Poorer consumers left unable to afford multiple services are returning to pirated content, while dwindling disposable income is forcing consumers to subscribe to fewer services. Already, Kantar research suggests the mean UK household is subscribed to an average of only 2.3 services. ITV might struggle to justify a spot on the streaming roster.

Moreover, the global spend on streaming content rose 14% to $220 billion in 2021 and will rise to $230 billion in 2022. Ampere Analysis’s Hannah Walsh believes this will be ‘primarily driven by subscription streaming services as the battle in the original content arena intensifies.’ ITV cannot match this level of financial firepower.

But with its market cap under £2.9 billion ($3.8 billion), ITV is little more than pocket change to trillion-dollar competitors like Apple or Amazon. This could make it a potential takeover target, as the streaming wars move to the consolidation stage.
And encouragingly, Chairman Peter Bazalgette, CEO Dame Carolyn McCall, and CFO Chris Kennedy spent a combined £250,000 on company shares after results were posted last week.

The ITV share price was worth 124p under a month ago. It has strong UK brand recognition, and its ad-supported strategy could see it generate significant revenue from cash-strapped consumers. Of course, whether this revenue will be enough to support continued cash-intensive content generation is another matter entirely.

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