Ad picture gloomy for ITV as Olympics deal a blow

The City will be anxious to know the depth of a worse-than-expected downturn in TV advertising when the Downton Abbey broadcaster ITV reports half-year results on Thursday.

Analysts have rushed to downgrade forecasts as it became apparent that many advertisers have decided to pull spending rather than compete with brands that are Olympic sponsors. Economic jitters have put further pressure on marketing spend, with Numis Securities saying "anecdotal evidence" suggests the TV ad market "could be down 5 per cent-10 per cent" in July and August.

ITV is expected to be particularly hard hit because the BBC has all the Olympics coverage and Channel 4 has the rights to the Paralympics. "We view risks on the downside," warned Numis, noting that every 1 per cent movement in advertising spend is worth £15m in annual revenues and £12m in profits before exceptionals. First-half ad revenues are still forecast to be up 3 per cent, thanks in part to Euro 2012, and profits should rise as ITV is now debt-free.

Meanwhile, BSkyB is expected to report record annual profits on Thursday but analysts are more worried about the storm clouds on the horizon for the pay-TV giant.Chief executive Jeremy Darroch spent almost £2.3bn to regain Sky's Premier League football rights, up 40 per cent on previously, and last week he launched Now TV, a cut-price internet movies service to combat the rise of Net Flix and LoveFilm.

Some in the City have been concerned about how Sky's pay-TV subscriber growth has slowed in recent quarters as the economic downturn and the rise of online rivals, known as over-the-top (OTT) players, take their toll.

"What started out as a defensive move against the new OTT players in town could backfire if cannibalisation of its core business takes hold," Ted Hall, analyst at Informa, warned, referring to Now TV.

Sky maintains that Now TV, which will offer movies for as little as 99p each, is a pro-active step to offer consumers more choice and it says it can absorb the extra cost of the Premier League rights through efficiencies. After freezing prices a year ago, Sky is expected to increase subscription costs for much of its near-10.5 million customer base this autumn.

Despite successful shows such as the X-Factor and Downton Abbey last week ITV1 only enjoyed an average audience share of 11.7 per cent against the BBC's 26 per cent