ITV profits up 25% despite continuing decline in ratings

ITV reported a 25% increase in pre-tax profits, despite a 4% drop in viewing in the first half of this year, saying it remained on track for a strong performance in 2015.

The broadcaster, home to X Factor and Downton Abbey, said pre-tax profits rose 25% to £391m in the first half of 2015, adjusted for amortisation and acquisition costs. On a statutory basis the figure was £327m, up 31%.

ITV increased total revenues across its business by 11% year on year to £1.36bn, according to its half year report on Tuesday.

ITV’s total share of viewing fell to 21.1% from 22.2% in the first half of last year, with the decline on the main ITV channel even more pronounced, down to 14.8% from 15.8% last year, a fall of 7% and believed to be its lowest share on record.

Revenues at its production division, ITV Studios, which has been transformed with a string of purchases including Talpa Media, maker of BBC1’s The Voice, and Poldark producer Mammoth Screen, was up 23% to £496m.

ITV chief executive Adam Crozier said the fall in viewing had not impacted on its commercial performance, with the broadcaster offering advertisers an “unrivalled ability to reach mass audiences”.

Total adjusted profits – earnings before interest, tax and amortisation – rose 24% to £400m for the first half of the year.

But Crozier said reversing the decline was a “key focus for the year”, promising increased investment in quality drama and its two flagship soaps, Coronation Street and Emmerdale, which are down 4% and 2% respectively year on year.

He admitted ITV’s factual output had underperformed, particularly at 9pm, and said the channel had also suffered as a result of English teams being knocked out in the early stages of last season’s Uefa Champions League.

Crozier said he would have preferred to hold on to the Champions League rights, which have been bought by BT, but said free-to-air players had been priced out of the live-TV market.

“The cost on a free-to-air model is almost impossible to justify,” said Crozier. “I think Sky have paid something like £11m a match [for the Premier League]. If you compare that to the cost of an hour’s very high quality drama, maybe £1m or £1.5m, that is a vast differential.”

Crozier said the channel would be “investing in storylines and bringing in new characters” in its soaps, with a “number of format changes” promised for Simon Cowell’s The X Factor when it returns in the autumn with new judges Nick Grimshaw and Rita Ora.

He said the channel would also look to improve its daytime performance and said Susanna Reid breakfast show Good Morning Britain, which struggled in the ratings after replacing Daybreak, was up 7% year on year.

“I think in factual we have had problems, particularly at 9pm where we have underperformed but we are very focused on that,” Crozier added.

Its ratings in the second half of the year are expected to be boosted by the rugby World Cup, along with X Factor and the return of I’m A Celebrity, Get Me Out of Here!, plus high profile dramas Jekyll & Hyde, Unforgotten and The Trials of Jimmy Rose.

ITV said it expected advertising revenues to be up 6% for the nine months to the end of September, after a 5% rise in the first six months.

Analysts at Jefferies said the results were “evidence of further progress” at the broadcaster but said the decline in share of viewing “may be a cause for introspection going forward”.

Strictly speaking, BBC needs to be original

With the BBC facing a radical overhaul of its services and funding as part of the charter review process, Crozier said the corporation “needs to be more distinctive”, with a licence fee that was “appropriate for its agreed scope of operations”.

“It needs to be more like an enabler and a partner to the commercial sector rather than a competitor. That goes for the local newspaper, national newspaper, television and many other markets on which they impinge,” he said.

“Compared to all other broadcasters, the BBC should be focusing more of its money on new and original programming, not on constantly returning things. It’s performance on that [measure] is broadly in line with the rest of the market when it should be way in advance.”

The BBC agreed an inflation-linked rise in the licence fee with the government, but the outcome is dependent on the outcome of the charter review kicked off by the government’s green paper earlier this month.

Crozier said: “Most people would say the process to date on both the licence fee and the response to the green paper hasn’t basically been smooth or terrific.

“The BBC needs to be more distinctive but for the avoidance of doubt that doesn’t mean not doing things like Strictly Come Dancing, an idea which the BBC came up with … it should be doing more of that.”

Crozier accused the BBC of not thinking through its plans for BBC Studios, the corporation’s revamped in-house production division which will be headed by former BBC1 controller Peter Salmon and prompted the threat of legal action by ITV.

“We don’t think it’s right the BBC should look to set up a commercial production company that relies on competing against the independent sector on the back of an unfair state funded subsidy,” he said.