TBI Weekly: Will ITV’s streaming shift lead to more M&A?

The Sex Lives Of College Girls

ITV has been among the most talked about takeover targets in the UK for years, but will its shift into streaming finally bring buyers out into the open?

It has been a fairly brutal few days for ITV, following its unveiling of new streamer, ITVX.

But before we go any further, a hat tip for not simply calling the thing ITV+. Unfortunately for the UK’s biggest commercial broadcaster, that’s where the positives seem to end with its share price now down almost 33% since Thursday morning.

The Confessions Of Frannie Langton

It was then that CEO Carolyn McCall unveiled her company’s “digital first” approach for ITV, which includes the launch of the AVOD/SVOD streamer that will debut a raft of new content months ahead of its linear channels.

And it was with that word ‘content’ that things started to go awry.

Record revenues & content concerns

The broadcaster certainly didn’t disappoint with its advertising revenue returns for 2021, scoring a record-breaking £3.4bn ($4.6bn), up from 2020’s £2.7bn.

That surge – 24% up on the disaster that was 2020 – had already been well trailed by analyst predictions by the time the Love Island company’s results were officially unveiled, but it seems to have been the spending on content that really irked investors.

Among the detail presented on Thursday was a plan to spend £1.23bn on shows this year, up from a previously announced £1.16bn, which will then rise to £1.35bn next year.

None of these numbers seem on the surface to be Earth shattering – even that £190m uptick is small beer in the world of soaring content costs. Perhaps a single season of Netflix’s doomed Vinyl and a smattering of The Crown, or a few episodes of Amazon’s budget-busting tongue-twister, Lord Of The Rings: The Rings Of Power.

And this is one of a few problems facing ITV. In its bid to attract younger viewers and ensure older audiences travel with it online, content isn’t exactly a luxury, it’s a necessity. And whichever way you cut it, prices are going up. And ITV is late to the streaming game.

A Spy Among Friends

Investors, meanwhile, are increasingly wary of increased content spending plans from relatively small fish in a pond inhabited by sharks.

It’s not just ITV or a UK issue, either: Paramount Global in the US saw its shares tank by 20% a few weeks ago when it revealed its streaming overhaul, which also came with content spending splurges. (Worth noting that its share price has almost recovered in the intervening two weeks.)

Scale & reach

In some ways, ITV faces a similar problem to that of Paramount – facing up to the importance of scale. The launch of ITVX will replace the existing, rather maligned, free streaming service, ITV Hub, which offered 4,000 hours and was seen by some as a rather small sticking plaster on a rather big problem, namely the migration of linear TV viewers to global streamers.

ITVX will march onto the starting blocks with a much more stately 15,000 hours, more akin to the offering from the big US giants.

Exclusive new drama includes A Spy Among Friends, starring Damian Lewis and Guy Pearce, Nolly starring Helena Bonham Carter, The Confessions Of Frannie Langton, starring Karla-Simone Spence, Lenny Henry’s six part drama The Little Birds, The Sex Lives Of College Girls from Mindy Kaling, and Litvinenko starring David Tennant.

Comedy comes in the form of Deep Fake, while factual shows range from The Case Against Cosby – a documentary exposing new truths about accusations against US actor Bill Cosby with exclusive access to survivors – and natural history series, A Year On Planet Earth.

Carolyn McCall

It will also include series from BritBox in the UK, which is now wholly owned by the UK commercial broadcaster after the BBC sold its 10% interest.

There will also be a ‘digital-first’ windowing strategy, giving ITVX preference on the latest shows, which will then arrive on broadcast channels six to nine months later. All ITV drama and comedy commissions will be made available to viewers on ITVX as soon as the first episode has aired on ITV’s linear channels too, with reality following suit.

So a lot of content and more spending. And while that seems to have concerned investors, the hope is that this will stem the decline in viewing – last year, across ITV’s linear channels and ITV Hub, just over 15bn hours were watched, a drop of 10% on 2020 when the pandemic forced many to the small screen for light relief.

Studios focus & alignment

While the content splurge didn’t seem to go down well with those holding a stake in ITV, it does have a few cards left up its sleeve – notably, the increasingly important global production division, ITV Studios. Fresh off The London TV Screenings, it is this part of the business that surely offers a way out for a broadcaster circling the plughole of endless spending on streamed content.

With production capabilities around the world and a highly tuned global distribution operation that is able to drive financing and coproductions, ITVS looks like it is fast becoming one of the most prized parts of the business.

The mood inside the ITVS camp seems similarly optimistic: late last year, ITVS unveiled plans to double the amount of scripted hours it produces within five years to drive returns from streamers, with “high-end scripted hours” to rise from 200 to 400 within five years.

Julian Bellamy

It is also aiming to increase the number of global formats produced in three or more countries from 16 last year to 20 over that same period, with “ambitions” to drive streamer revenue from an expected 16% in 2021 to 25% by 2026.

Indeed, ITVS might just find itself able to leverage profit from the streamer competition that is causing such an overhaul to its more traditional operations.

Speaking to TBI last year, ITVS MD Julian Bellamy highlighted that while US streamers have an “impulse to take as many global rights as they can… there is still plenty of scope to take underlying distribution rights,” reflecting the Netflix coproduction deal on Bodyguard, which ITVS has since sold to linear broadcasters.

Bellamy also pointed to Apple TV+ drama Physical, which is produced by ITVS-owned Tomorrow Studios and recently extended into a second season, as another example. “That’s a global deal but we retain some underlying distribution rights and ownership, so while there is an impulse, not every deal is the same.”

It is managing those impulses that will be key for ITVS, while its parent must face down an increasingly competitive world of global streaming behemoths in the UK.

To do that, it seems likely to need more scale, whether that comes in the form of acquiring Channel 4, if it is ever put on the block by the UK government, or by being bought itself – Liberty Global remains a key player in this regards, with a stake of almost 10%.

Or perhaps ITV will prove its doubters wrong and become a lean and aligned studio-streamer operation, creaming profits from the global OTT’s on the production side and playing a savvy streaming game in the UK with ITVX and globally with BBC Studios joint venture, BritBox.

That latter version of events looks unlikely, however. McCall said on Thursday that the “supercharging” of its streaming business would “enable ITV to continue to be both commercial viewers and advertisers’ first choice.”

With its stock at its lowest ebb for almost two years, the question now seems to be whether any acquisitive rival might make a similar deduction.