ITV gambles on content

A confident ITV under Michael Grade is keen to restore advertiser confidence by improving its flagship channel and its online presence. By Nic Fildes

Michael Grade has set ITV an aggressive set of growth targets over the next five years as the broadcaster looks to revamp its flagship ITV1 channel and its website and bolster investment in its digital channel ITV2 and production business.

Central to Mr Grade's growth strategy is a plan to double its content revenue to £1.2bn by 2012 while increasing its online revenue to £150m by 2010. Progress on those two fronts will drive revenue growth between 3 and 5 per cent over the next three years before stabilising at 5 per cent in 2011 and 2012.

The former Channel 4 and BBC executive chose an opportune time to launch the broadcaster's new strategy with advertising revenues on the up and the regulatory environment improving.

ITV reported that advertising revenue is up 5 per cent in the third quarter, including a 2 per cent rise at ITV1 while audience share has stabilised on the back of a number of hit programmes such as Britain's Got Talent and Kingdom after a tough two years."It's early days and there is still a great deal to do, but [the recovery] is certainly restoring advertisers' confidence and it's doing wonders for our morale," said Mr Grade.

Despite expectations that the company may significantly increase its investment in ITV1, the broadcaster instead put the bulk of new funds toward improving its ITV2 channel as it continues to chase Channel 5 for male viewers between the ages of 16 and 34.

ITV will pour an additional £20m into its largest digital channel and focus on maintaining ITV1's resurgence by improving its position in drama, comedy and sport. "ITV1 is about to get a serious facelift in 2008," said Mr Grade.

ITV's plan to double its content revenue will put pressure on its production division to develop content that can be rolled out internationally – like its Hell's Kitchen show, which ITV refers to as a "£5m franchise".

ITV sources about 54 per cent of its commissioned shows from its productions unit but plans to increase that to 75 per cent over the coming years.

There was an element of déjà vu about ITV's growth strategy with many of Mr Grade's plans echoing those of Charles Allen, its former chief executive. Mr Grade pre-empted comment on the apparent caution inherent in the strategy, arguing it was a "realistic plan rooted in our core skills". He added: "The vision set out today is actually very ambitious."

However, Anthony de Larrinaga, an analyst with SG Securities, said there was "not a lot to get excited about" in the strategy update, which proved to be "more tinkering than revolutionary".

Analysts at Numis Securities said the strategy played to its strengths but questioned whether the broadcaster could hit its aggressive growth targets, particularly in the online sector. "We find it hard to believe that this will grow to the scale suggested by ITV," the analysts said.

Mr Grade said that the "new ITV" will operate in a market worth £12bn if factoring in new types of advertising, roughly double the size of the "old ITV's" core market of UK advertising and programming. Mr Grade said that his ambition is for ITV to become "the UK's favourite source of free, original entertainment across all popular platforms and devices, not just on television".

Key to that ambition will be the success of its revamped ITV.com web site. Mr Grade said the potential of the new site will be driven by the popularity of its content. He said that the video clip of Paul Potts winning Britain's Got Talent has been viewed 30 million times on YouTube, proof that the broadcaster's content is compelling online. ITV is in talks with a number of content aggregators to reap the benefits of such activity.

ITV plans to fund its investment in driving digital and online growth by making cuts elsewhere, savings that will also free up around £200m that the broadcaster intends to use to strengthen its content production business around the world.

The company has put a number of non-core assets up for sale, including its Screenvision US business and some property assets, but more controversial was a plan to shake up its regional news operations in order to save up to £40m a year. ITV spends around £120m a year producing 17 different regional news shows.

However, with Ofcom launching a review of the public service obligations of broadcasters, ITV has revealed that it plans to cut the number of local news services to nine.

The plan was immediately condemned by Bectu, the broadcasting union. Sharon Elliott, a Bectu official, said: "Today's announcement is another kick in the shins for ITV's regional news staff... ITV is clearly trying to bounce Ofcom into accepting its proposals before the regulator's review has even begun."

ITV confirmed that it is to pull its late night ITV Play call-in quiz shows in the wake of the recent scandals around the industry. Mr Grade said the shows will be phased out by the end of the year as growth has dried up due to the bad publicity around the shows. "Viewers have voted with their dial-in fingers," he said.

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