Proclamation From The Court of The Sun Queen
So finally the puff of smoke has risen from the ITV Towers ( sadly not my beloved LWT building as that is now being turned into luxury flats, but rather its Holborn HQ , lovingly known as ‘ Hogwarts’ by ITV insiders ) & the ‘Sun Queen’, Dame Carolyn McCall, has unveiled her 3 year strategy for ITV. I use the term ‘Sun Queen”, by the way , with the deepest affections, for who else would have given us the opportunities to visit various European cities via cheap air travel? So it is a deeply warm term. This is the focus of my blog this month & apologies in advance, but it is rather longer than usual as I wanted to take a very good look under the bonnet.
Firstly, I need to state a few provisos:
> Having spent most of my career at ITV & being a deep believer in the Creative Services in this country, then I remain a huge ITV fan.
> Dame Carolyn McCall is a class act & a very good appointment for ITV. She fearlessly saw off Stelios at Easyjet & did a brilliant job for them. To be fair I always thought Carolyn’s job was going to be extremely difficult given the ‘new integrated ecosystem’ that ITV have to operate in. Hence I have awaited with Merlinesque breath to see her first set of magic potions.
Ok, enough of the foreplay, let’s dive in the ‘chapters’ she unveiled at Wednesday’s half years results & her vision for ITV. Let’s start with the ‘state of the financial engine’ :
> EBITA margin OF 25% on the broadcasting business & 15% on the Studios side. Who wouldn’t want numbers like that ?
> Profit to cash of 94%
> AD revenues +2% you, with 1% forecast to end of September.
> Online Revenues +48% yoy
> Direct to Consumer Revenues £41 mill.
If we just pause there, then we can safely put one myth to bed….ITV ( & TV ) is not a dying business..rather it is still a great business but it is having to cope with huge consumer & market change…hence the 3 year challenge ahead for our ‘Sun Queen ‘. Thus on the surface it all looks rosy, a high operating margin, cash rich, well run company. However, us ex-ITVers & shareholders, still will not sleep easily in this barmy weather without the comfort of how ITV will continue to deliver these impressive results in the years to come.
So what exactly is Carolyn’s plan ?
Well, after having the consultancy firm, Bain & Co, camped out at ITV across the past 7 months, what nuggets of advice have they mined to the surface ? ( I experienced many a consultant in my time at ITV, a few McKinseys, BCG ( The Boston Stranglers as they were ‘charmingly ‘ referred as ) & indeed Bain on previous occasions. )
Essentially a 6 part strategy :
* Be the Pre-eminent integrated Producer/Broadcaster for consumers & brands within the UK
* Create a leading ‘ Direct to Consumer’ business in the UK with strong consumer relationships.
* Become a World Class Creative force in the global Content markets.
* Create a lean & agile organisation in the UK with leading capabilities in data analytics & technology
* Be a future facing modern, & digital brand that’s relevant to all viewers & brands.
* Continue to be a sustainable, cash generating & growing business which delivers to all shareholders.
When I heard Carolyn talk about these areas on the radio this am, then I found her uncharacteristically quasi nervous. True, it didn’t help that BBC Radio 4 introduced her as ‘Davina McCall'(!), but she still appeared nervy-aggressive mode.
Looking at each of these areas in turn :
> Stronger Producer/Broadcaster links :
There is a reference to 360 degree commissioning & closer ties with ITV Studios. There are a couple of issues here in that ITV had historically operated as 3 separate islands.When one considers that most companies have 3 areas of activities to focus on, i.e Manufacturing,Distribution & Commercialisation, then pre Adam Crozier, rather than these 3 units flowing harmoniously into each other, they chose to keep their distance. To be fair Adam Crozier did try to crash these together but I still feel there is a way to go before the Commissioning/Studios relationship operates at full tilt.
Although ITV Studios still takes captures the majority of commissioned slots, the 25% Indie Production quota & other factor still mean there is heaps of work to do in this area. Love Island, & to a much lesser extent The Voice, have opened up the 360 degree commissioning door, but it has been very reluctantly opened & ITV has been really slow to venture into this space, mainly in the belief that all that counted was the ‘on air’ piece.
> Direct to Consumer business :
ITV has long had the potential to excel in this area – after all it does reach 98% of the population, so in theory has 50 million customers. However, a mixture of antiquated regulations & a non willingness of previous management regimes to invest in this area, has lead to it rather missing the boat to date. One only has to look at the success of M6 in France, that has long sold its own & licensed products off its own screen to see how successful this could be. Love Island has been a huge success in this area & gradually some of the events, such as This Morning Live, are bearing promising fruits. Carolyn needs to be bold & aggressive in this area, the £100 million 3 year target looks ok at first glance, but it will still represent a fraction of the overall revenues. ITV has long made ‘other people’ rich in this area & with the right regulatory approval she should look to line ITV’s treasure chests with even more gold in this respect.
> World Class Creative Force in the Global Markets :
Whilst I massively respect all the Creatives in ITV Studios & believe that they are all massively passionate & talented people, I worry about the scale of investment required to support this Creative Community in order to truly become a force in the global markets. Very few formats from ITV have gone truly global & the US in particular has been an extremely difficult to crack. The purchase of Talpa, at US $500 million by the previous management team was an attempt to buy a global Entertainment hit, but that now looks like an expensive purchase.
The UK & The US have traditionally been the breeding ground for global hits but the scale of investment required to bring hit shows to global audiences now looks very daunting as the Big players – Disney, Netflix, Amazon, Comcast et al are rapidly growing & building content slates for global rather than local audiences. ITV does of course co-fund & even tri-fund International Dramas , but nothing in Carolyn’s words point to how she is really going to win the new global content war ( or even have a slightly bigger piece of it ). Home grown shows such as Come Dine With Me, I am a Celebrity NGMOH & now Love Island, are having international success but one can’t help feeling that although ITV is a Big High Street Content store in the UK, it remains but a ‘pop up staol’ from an international viewpoint.
> Data Analytics & Technology:
There is not much to say here as ITV has traditionally ran away from this area & really lagged behind. Carolyn’s experience at Easyjet will definitely reap dividends in this space, but the questions remain are how much will she really spend on this area & how quickly will this investment pay off ? She has already made hires in this area, so stay tuned & let’s see what happens in the times ahead.
> Be a Future Facing modern & Digital Brand :
This is one of the most interesting areas & the one I feel is vital to ITV’s future health. Given that ITV makes the bulk of its money from brand advertising, then it is somewhat bizarre that ITV has spent such small sums of money advertising & marketing its’ own brand.
Historically ITV’s own on air marketing ( said to be worth in excess of £350 mill per year ) across its own channels was the traditional way it advertised. This was fine in a 3/4/5 channel world & with 98% reach then it did the job.
However, as times rapidly changed ITV did not & as less people watched ITV , then less people became aware of the brand & the shows on its channels. In effect ITV’s SOV in the Broadcast marketing arena was less than Sky, C4 or even c5. None of these issues can be laid at the door of their Group Marketing Director, Rufus Radcliffe. He engineered a highly successful rebrand a few years back but simply didn’t have a big enough marketing budget to rebuild the brand to the wider British public.
Carolyn spoke about winning back 15 million ‘light viewers’, a decision I whole-heartedly applaud. However, in order to do this ITV needs to have the biggest SOV in the Channel marketing eco-system & use all media outlets, not just their own airspace. Although she mentioned a total company £60 million investment spend, I couldn’t see enough detail to uncover exactly how much of this will go towards this area, but instinctively I don’t feel the full budget will materialise to do a proper job.
There is also a link back here in terms of ‘on air’ & ‘online success’. Launching new shows is an incredibly difficult task, primarily in getting the public to sample Episode 1 of said show. Only a few shows enjoy on air marketing support at ITV, even fewer get off air/or off home channel support. In a world of mass choice then the ability to find a new programme is becoming ever complex & competitive. Despite the creative excellence of a given show, it is still the marketing campaign that leads you to the front door. Awareness is where the whole world of Brands begin, let’s hope ITV really ventures back to the ‘learner slopes’ on this one.
> Continuing to Deliver to Shareholders :
There is no doubt about it, ITV has been very well financially run over the past 5 years. Profits, dividends, tax control, pension deficits etc are all in fine health. I have long respected ITV’s COO & Group Finance Director, Ian Griffiths, who has done a fabulous job in this zone. Sadly Ian will leave at the end of the year, so Carolyn needs an equally talented hire to replicate this historical excellence.
There are a couple of items that Carolyn did not really highlight :
> the future of a pan UK Broadcaster VOD/ Streaming platform, i.e Britbox Plus. :
Having personally lived through the previous attempt at this -Kangaroo- then I still feel this is a great idea , although I suspect that getting a three way deal done with BBC, C4 & ITV as potential partners will be fiendously complex ( just imagine the politics ). On this occasion the regulator will drop their objections to ‘market dominance issues !’
> The UK TV Ad Market Dynamics :
Not much offered up here, but just to recap on some issues :
* ITV trades on a ‘share of broadcast budgets’ basis with the vast bulk of their advertising clients & agencies.
* the existence of CRR ( Contracts Right Renewal ) regulatory mechanic linked into this – basically a throwback to 2003 when Carlton & Granada merged to form the new ITV network. It designed to protect advertisers from ITV’s dominance of market share of primetime audiences. It is so antiquated in a modern era that it is farcical it still survives.
* Share of Broadcast budgets doesn’t really mean a hoot in a digital ecosystem, & ITV needs to be allowed to ditch CRR & get on with the business of working with brands & their agents as it sees fit. There is more than enough competition out there, so nobody should moan about market dominance issues – for those areas pls see Google, Facebook, Amazon etc.
* Whilst I am harping on about the Regulator, then DCMS & Ofcom should really leave ITV alone & allow them to get on with running their business & trying to compete against those scary, highly unregulated Digital giants. It is not just airtime, but product placement, promotional references etc that are land-locked in the 1950s style Boys Club.
* ITV Hub has 25 million registered users with an ambition to get to 30 million , but how many of them are regular, active users of the service ? That’s the key stat required.
My final look inside the engine focuses on the ‘Investment’ side of Carolyn’s plan. She highlights a £60 mill total investment , spread across 3 years, with £40 mill occurring in 2019, but then only £10 mill pa in 2020 & 2021.
Given the scale of the task/ambitions that Carolyn has set herself then this seems a very paltry sum & smacks to me of ‘pleasing the City’, rather than ‘really going for it ?’ Surely the marketing investment in its own right to find the 15 million light viewers & make the ITV brand accessible to all in a highly competitive ecosystem warrants a significant chunk of this ? Let alone the data analytics/technology improvements ?
I am worried that this smacks of the Short Term vs Long Term debate I have often cited in previous blogs. The task ahead to keep ITV in the rudest of health will require a substantial investment yet Carolyn seems stymied by the desires of the investment community to extract short term gains. She even offers up £40 mill of cost savings to help partially pay for the additional investment. Whilst cost savings are an ongoing house keeping task for every CEO, it feels like a ‘static response’ to me. I just wish she had been bolder & hoped to convince shareholders that ‘now’ really was the time when a ‘real investment’ was required in order to safeguard ITV’s long term future.
Finally we need to consider if ITV will remain a lovely but small UK focused company or that it really will be gobbled up by bigger prey ? Liberty Global or one of its cohorts ? It cannot possibly compete in the Global Content markets without a Bigger Brother/Sister.
My overriding feeling is that the ‘Sun Queen’ has outlined all the conditions for future success but has refused to play any high risk cards & has opted for the game of ‘stick’ rather than ‘twist’.