ITV's Stagnant Earnings: A Missed Opportunity for Shareholders

ITV plc, the UK's largest commercial broadcaster, has had a challenging time over the past five years, with earnings growth of just 0.2%. This lackluster performance has not translated into positive returns for shareholders, who have seen the company's share price languish. In this article, we will explore the factors contributing to ITV's stagnant earnings and discuss the strategic initiatives the company has undertaken to drive growth.



Advertising Market Challenges
One of the primary factors contributing to ITV's stagnant earnings is the challenging advertising market. In 2023, total advertising revenue (TAR) was down 8% as guided, and linear advertising revenue declined by 15% due to market conditions. This decline in advertising revenue has significantly impacted ITV's top-line growth and profitability (Source: ITV plc, 2023 Annual Results).

Investment in ITVX
ITV has been investing in its streaming platform, ITVX, which has driven significant growth in digital viewing and revenues. However, these investments have led to a decline in adjusted EBITA, as the company has been investing in content and technology to support the growth of ITVX. In 2023, M&E adjusted EBITA was £205 million, reflecting the decline in linear television advertising and the planned investment in ITVX (Source: ITV plc, 2023 Annual Results).

Restructuring and Efficiency Programs
ITV has implemented cost-saving programs and restructuring initiatives to improve efficiency and profitability. While these programs have delivered annualised savings, they have also resulted in one-off costs and temporary disruptions to earnings. For example, in 2023, ITV delivered £130 million of annualised savings from its existing cost-saving program, but there were also c.£50 million of one-off costs associated with these savings (Source: ITV plc, 2023 Annual Results).

Hollywood Labor Strikes
In 2023, Hollywood labor strikes impacted ITV's studios business, leading to a decline in revenues and profits. The strikes affected the production of shows and the availability of content, which in turn impacted ITV's ability to generate revenue from its studios division (Source: Deadline, 2023).

Dividend Policy
Despite the stagnant earnings growth, ITV has maintained its dividend policy, paying a final dividend of 3.3p per share for the full year 2023, in line with the previous year. However, the dividend yield has decreased over time, reflecting the company's stagnant earnings growth and the impact on shareholder returns (Source: ITV plc, 2023 Annual Results).

Strategic Initiatives
ITV has undertaken several strategic initiatives to drive earnings growth and improve shareholder returns. One of the key initiatives is the expansion of its digital presence through ITVX, the company's streaming service. ITVX has seen significant growth in digital viewing and revenues, with monthly active users up 19% and total streaming hours increased by 26%. This has driven 19% growth in digital revenues to £490 million. Additionally, ITV has maintained its unique position in linear television through the quality and breadth of its schedule, delivering mass simultaneous reach and innovative commercial and creative partnerships.

Another strategic initiative is the focus on growing its Studios business. ITV Studios has delivered record revenues and profits, with total revenue growing 4% and adjusted EBITA growing 10% with an industry-leading adjusted EBITA margin of 13.2%. The Studios segment has also seen outstanding creative deliveries, including Mr. Bates vs. The Post Office, Fool Me Once, Squid Game: The Challenge, Love Island, and My Mum, Your Dad. Since 2018, ITV Studios total revenue (excluding acquisitions) has grown by c.5% CAGR, faster than the market CAGR of c.4% CAGR.

ITV has also implemented a restructuring and efficiency program to reshape the cost base, enhance profitability, and support the growth drivers of Studios and Streaming. The existing cost-saving program targeting £150 million between 2019 and 2026 has delivered £130 million of annualised savings to date. The company is on track to deliver the full £150 million by 2025, one year early. In addition, ITV is in the early stages of a new strategic restructuring and efficiency program across the Group to deliver further incremental material savings over a number of years, which will further build ITV's resilience.

Conclusion
ITV's stagnant earnings growth over the past five years has not been enough to translate into positive returns for shareholders. While the company has faced challenges in the advertising market and invested in its streaming platform, ITVX, it has also implemented cost-saving programs and restructuring initiatives. Despite these efforts, ITV's earnings growth has lagged behind the market. To drive earnings growth and improve shareholder returns, ITV must continue to focus on its strategic initiatives, such as expanding its digital presence and growing its Studios business, while also addressing the challenges in the advertising market. By doing so, ITV can unlock its full potential and deliver value to shareholders.