Shares in free-to-air broadcaster ITV (ITV) slumped by 14.2% to 94p despite the group announcing better than expected full year results.
The market is concerned about the viability and the associated costs of the group’s attempt to supercharge its streaming operations by launching a new platform, ITVX.
Anticipated content spend is significantly higher than consensus forecasts.
Earnings before interest, tax and amortisation increased by 42% to £813 million, in response to a 24% increase in revenue growth to £3.4 billion. A 5p dividend was ahead of consensus estimates.
Despite being in lockdown for the first three months of the year, the group recorded a 24% increase in advertising revenue to reach a record level of £2 billion.
ITV’s new streaming platform ITVX is in essence offering viewers the chance to see some of its programmes before they are broadcast on linear TV as well as its back catalogue of shows.
ITVX is targeting 15,000 hours of content that will include dramas including Damian Lewis’s A Spy Among Friends, and multiple ITV hits such as Love Island and Broadchurch.
Group content costs are expected to total £1.2 billion in 2022 with £20 million of digital first content spend for ITVX, with £25 million invested in ITVX's data and tech capabilities as well as one-off launch costs for the new platform of £20 million.
'JUSTFIABLE CONCERNS'
There are justifiable concerns at the extent of new investment being made in ITVX given both the crowded nature of the streaming market, and the negative long-term tends in linear television.
Fewer people are sitting down to watch live TV, as they increasingly switch to alternatives like Netflix, Amazon Prime or Disney+.
Another challenge facing ITV is the escalating cost of quality content. Its rivals have deep pockets and viewers will always be attracted to companies that can continually provide access to new, innovative and engaging content.
Numis analyst Steve Liechti commented: 'New digital and content investment looks to have a near-term investment hit to profit versus longer term growth targets.
'TV broadcast momentum is strong as we come out of lock down and ad markets recover.
'We remain on the fence over the longevity of this recovery and how management initiatives crystallise vs. longer term negative structural linear TV trends.'
