ITV faces risks from cost inflation and Britbox, warns Berenberg

UK commercial broadcaster ITV faces significant risks from advertising pricing inflation and lack of progress with Britbox, despite strong results for the year to date, according to an analysis by Berenberg.

The analysts noted that ITV’s numbers for the fourth quarter are “much stronger than expected”. They noted that the momentum built in Q3 continued into the fiscal fourth quarter, despite much tougher comparisons with last year’s strong bounceback from the COVID lockdown, with an expectation that ITV will end the year with advertising growth of 24%.

However, Berenberg cautioned that “the price of advertising could result in marketers shifting to other media” as cost inflation takes hold.

While ITV benefited last year from increased video viewing from homebound consumers, constricted marketing budgets meant that CPMs – the cost of advertising – declined. TV viewing is now once again declining, Berenberg warned, but increased advertising spending is leading to cost inflation. The analysts warned that many advertisers could look to alternative digital media if this trend continues.

Berenberg also said it believed that Britbox active users and probably paying subscribers have declined quarter-on-quarter, despite ITV’s claim that the SVOD service is progressing according to plan.

While the analysts believe that “probably there will be a Christmas pick-up” in numbers, they warned that there is a likelihood that “Britbox UK will not deliver sufficient growth in customers to break even, and that the only way to reduce losses will be to cut marketing spend and content investment”.

Berenberg said that it took the view that “Britbox UK is an unnecessary distraction, and that management should focus on the monetisation and maximisation of audiences”.

ITV earlier this month posted strong results for its fiscal first nine months, with total revenue up 28% at £2,381 million and up 8% compared to the pre-pandemic year of 2019. The broadcaster said that ad revenue for the full year was now expected to be the highest in its history.

CEO Carolyn McCall said that ITV was “becoming an increasingly scaled digital business” and pointed to the expected record ad revenues, which she said was driven by the combination of broadcast and ITV Hub’s “mass simultaneous reach”.