ITV PLC (LSE:ITV) boss Carolyn McCall has another chance next week to persuade investors that the company is on the right path with its digital strategy, after the launch in March has seen the company lose more than a third of its market value.
Despite reporting record revenues and beating profit forecasts, investors seemed spooked by the FTSE 100 group’s big announcement on the planned launch of its ITVX streaming service at the end of 2022 to replace the current ITV Hub.
ITVX is designed be the UK’s first integrated advertising and subscription-funded platform, with ITV planning to invest £205mln over this and next year.
Promising to launch a new series every week, McCall said there will be £1.23bn spent on new content in 2022 and £1.35bn in 2023 across its linear and streaming channels, with the aim of reaching a subscriber base of 2.5mln and 2bn streaming hours by 2026.
However, this is small beer in comparison to the spending by Disney and Netflix, which shelled out US$16.8bn and US$17.3bn on content and licences last year.
What’s more, the launch comes at a time when Netflix has taken a battering as consumers cut back on spending.
Several analysts were unimpressed, with Barclays downgrading its rating and calling the maker of Love Island, Masked Singer and Ant & Dec’s Saturday Night Takeaway out for being too cautious.
Barclays said McCall should have poured the £205mln investment into ITVX in one go rather than in three separate tranches and said the investment comes at a cost of declining earnings per shares (EPS) in the next two fiscal years.
There are other headwinds too, said Berenberg with new high fat sugar and salt (HFSS) advertising restrictions incoming and “murmurings” of dissatisfaction from advertisers about the value of TV advertising.
This is stemming, the analysts suggest, from a sharp rise in the cost of ITV advertising as growing ad spend meets a decline in viewing time.
In an environment where other input costs are increasing at above-average rates, the 40% increase seen in the final quarter of last year “will likely render TV advertising a source of cost cuts”, Berenberg said, adding that “we are starting to hear murmurings from we are starting to hear murmurings from media buyers about disquiet in the advertiser community in this regard”.
ITV will release a first-quarter trading update on Wednesday, with investors looking out for possible more details on the ITVX plan plus any encouraging signs on advertising and viewer numbers.