ITV hit by ad slump and there may be worse to come in Brexitland

ITV Studios is picking up the slack, but its earnings need to be reinvested to grow the business. Shareholders will just have to tighten their belts because the broadcaster's historical advantage won't last for ever

Cold Feet: It's revival has been a success for ITV (PA)

With all the fuss some bloke called Donald Trump who’s been making something of a noise across the pond, it’s worth remembering that Brexit is still with us.

As ITV has just proved with its latest trading statement. The broadcaster expects a 7 per cent fall in ad revenues during the final three months of the year, despite all the fuss about the latest John Lewis Christmas ad now that the festive season starts in the middle of November.

The most recent quarterly trading period - ITV’s third - showed a 4 per cent fall and the broadcaster is expecting the full year figure to be down 3 per cent, which tells you the decline is accelerating. It isn’t at all hard to see why.

Companies are nervous post Brexit so they’re sitting on their hands and reducing their ad spend. ITV describes their behaviour as cautious. If you could put corporate speak into Google Translate it would turn that into “we’re scared”.

With good reason. Falling ad spend can be one of the first signs of the economic downturn. In other words, the one caused by Brexit, that only the blinkered fools at Economists for Brexit failed to predict, is on its way. Mr Trump’s election may serve to make their “cautious” behaviour even more cautious.

ITV, however, says that it is a more resilient company under boss Adam Crozier than it once was and that it can weather the coming storm.

It might have a point there. The content producing ITV Studios pushed sales up 18 per cent. Victoria! Cold Feet! and, erm, Love island! Among others.

In fact, ITV’s non ad related revenues now eclipse what it draws in from ads, a very good thing for the long term.

ITV likes to brag about the fact that it is one of a very few media outfits that can still deliver a mass audience to the type of advertiser for which that is more cost effective than more targeted fare.

But part of its ability to do so rests on its historical position, and the fact that regardless of whether you get your TV from Sky, or Virgin, or Freeview, it’s the third channel you’ll see in the listings, the third channel you’ll happen upon as you toggle through the multiplicity of channels on your remote.

Trouble is, increasing numbers of people don’t have TVs. And even if they do they’ll sometimes use other devices to consume content.

ITV’s historical advantage is fading. At some point it will disappear. Long term, it needs to keep churning out high quality content to draw in viewers so that advertisers, and sometimes subscriptions, follow. It needs to proactively draw them in rather than relying on them passively sticking at channel three when they find their way there. Or low quality content (yes I’m looking at Love Island there).

The issue for investors is that while revenues are growing at ITV Studios, profits are not because of the need to re-invest them if the division is to grow as it needs to. They’ll just have to deal with that, because ITV’s historical Ace of Diamonds may into a Jack, or even a lowly Seven, sooner than anyone expects.

The company’s shares are at least starting to look competitively priced, having fallen by 40 per cent in a year amid its advertising related difficulties. It has also been cutting costs (and jobs) although that will only get the company so far.

Whether they and the price crash make the shares competitive enough to buy is debatable, because it may get worse before it gets better for ITV and other broadcasters that depend on ad spend in Brexitland.