ITV Unveils Restructuring Program as 2023 Studios Results Hit Record, Ad Revenue Drops 8 Percent

Georg Szalai
·7 min read
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U.K. TV giant ITV reported record results for its ITV Studios production unit and an 8 percent advertising revenue decline for 2023, compared with 2022, on Thursday, also unveiling a new efficiency program to boost profitability amid an economic environment that remains “uncertain.”

ITV, led by CEO Carolyn McCall, also saw total external revenue drop 2 percent in the latest full year to £4.26 billion ($5.43 billion). Adjusted profit before tax for the year fell 41 percent to £396 million ($504 million).

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On an earnings conference call, McCall said 2023 featured “a tough advertising market,” but she was now seeing “more confidence in the ad market.” Compared to the same period in 2023, ITV is forecasting its first-quarter 2024 ad revenue to be up 3 percent, “with continued strong growth in
digital advertising revenues.”

The company made good on its previous forecast that ad revenue would be down around 8 percent for the full year 2023 after a 7 percent drop over the first nine months of the year as November was expected to be down around 15 percent and December down 10-15 percent, compared with the same periods in 2022 which included the positive impact of the FIFA soccer World Cup. The ad haul for the year amounted to £1.78 billion ($2.27 billion).

In terms of streaming, McCall said on the earnings call that its streamer ITVX was already profitable. “Monthly active users were up 19 percent, and total streaming hours increased by 26 percent, which drove 19 percent growth in digital revenues to £490 million ($624 million),” ITV said on Thursday.

CFO Chris Kennedy explained on the call: “The way we think about it is it’s not primarily a subscription service, unlike the big U.S. streamers. It’s ad-funded, it’s free to watch, it’s a continuation of our existing business of ad-funded free-to-air TV. … Importantly, for us, we can now serve adverts dynamically into what they’re watching. .. It also means that all of the viewing is now monetizable. In the old linear world, someone watched more than seven days after we broadcast the program, we wouldn’t get paid. Now, every time someone watches on ITVX, whether it’s live, or it’s catch-up with the service after that, we get paid and the CPMs on those ads are higher.”

Added McCall: “So we have a very different model for streaming than then global streamers. It’s a very integrated model. And our content budget goes over both ITVX and ITV channels. … One of the things we’re most pleased about on ITVX is not only have we increased light viewers by 65 percent, but 90 percent of the people that come to a premiere actually go on to watch other content on ITVX.”

BBC Studios, the BBC’s commercial content studio and streaming business, recently unveiled a deal to acquire ITV’s 50 percent stake in BritBox International for $322 million. The transaction will give BBC Studios full ownership of the BritBox streaming platform and value it at $631 million. As part of the agreement, BBC Studios has extended its licensing agreements with ITV to ensure that the latter company’s British content will continue to appear on BritBox.

Total revenue at its production arm ITV Studios grew by 4 percent in 2023 though to hit a new record of £2.17 billion ($2.76 billion). The studio arm’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) also hit a record of £286 million ($364 million). “ITV Studios delivered record revenues and profits as the business continued to demonstrate its strong market position, with outstanding creative deliveries globally,” McCall said.

The company recently forecast that ITV Studios would “deliver total organic revenue growth of at least 5 percent per annum on average to 2026 and to grow ahead of the market as we further strengthen the business.”

ITV touted on Thursday that ITV Studios has grown its scripted business “with 316 hours of high-end scripted content delivered in 2023, an increase of 14 percent from the prior year,” adding that “this has helped to further diversify our customer base, with almost a third of Studios revenues coming from streaming platforms in 2023, up from 22 percent in 2022.”

McCall emphasized her team’s priority was “to attract and retain the leading talent in the industry,” adding: “We have seen outstanding creative deliveries from recent talent deals and acquisitions, including Fool Me Once and After the Flood from Quay Street Productions, One Piece from Tomorrow Studios, and Big Beasts from Plimsoll Productions.”

And she added: “The global content market is large and attractive, with all platforms needing a mix of content to succeed in a very competitive landscape to attract audiences. We expect to see growth in key segments in which we operate – content licensing, demand from streaming platforms for unscripted content and cost-effective premium scripted content. ITV Studios is very well positioned to take advantage of this growth and to grow our market share over the medium term, driven by our scale and diversified position, our investment in development and creative talent and our high-quality IP.”

But in 2024 ITV Studios will be impacted by “delays in production as a result of the writers’ and actors’ strike in the U.S., combined with the continuation of weaker demand from free-to-air broadcasters in Europe who are holding back spend until they see more certainty in the TV advertising market,” the CEO warned.

On the call, McCall highlighted that production talks weren’t allowed during the strikes, which impacts the content pipeline, especially given that it takes 18 months to make dramas. “But that obviously has come back already,” she said. “We are seeing this as a blip.”

Overall, ITV’s management said that it sees business trending in a good direction. “In 2023 we saw the benefit of the actions we have taken to reposition ITV towards higher sustainable growth,” McCall said. “Our Studios business recorded the highest-ever revenues and profits, and in its first year, ITVX delivered strong growth in viewing and digital revenue with investment on plan. This growth in production and streaming substantially offset the challenging linear TV advertising market conditions.”

She added: “2023 was the year of peak investment for streaming, which together with the successful execution of our strategy and the efficiencies delivered to date have made ITV more robust. ITV has a leading, scaled, global Studios business, a high-growth streaming service and a cash-generative linear advertising business. This ensures that we are well placed to grow profits from here as we continue to drive material efficiencies, invest behind our strategic priorities and deliver returns to shareholders.”

McCall also unveiled that ITV’s existing cost-saving program targeting £150 million ($191 million) between 2019 and 2026 has delivered £130 million ($166 million) of annualized savings to date. “We are on track to deliver the full £150 million by 2025 – one year early,” she said and unveiled a new cost savings initiative.

“We are now in the early stages of a new strategic restructuring and efficiency program across the group to reshape the cost base, enhance profitability, and support the growth drivers of Studios and streaming,” McCall said. “By the end of 2024 we expect the program to have delivered incremental annualized gross savings of at least £50 million ($64 million) per year, giving a £30 million ($38 million) a year gross benefit in 2024. The ongoing program is designed to deliver further material incremental savings over a number of years.”

On the earnings call, McCall said the goal of the new program was to “de-risk” and “future-proof” the business, saying optimization “is never over.” The ongoing moves will help provide some “headroom” for the company, she added.

ITV executives were also asked about the company’s thoughts on the use of AI, saying ITV was “careful,” but “optimistic” about using it, for example as a productivity tool, with generative AI serving as a possible “co-pilot” for creatives over time rather than as a replacement. McCall said ITV sees it only as “enhancing” creative work.

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