ITV buying UTV: What will ITV get for its £100m?

20th October 2015

Last month ITV, the UK’s largest free-to-air commercial broadcaster, celebrated its 60th anniversary.

ITV (that’s both the ITV network, as well as ITV plc, which owns the network along with STV Group) is now such a part of the broadcasting landscape that it’s hard to imagine that it was once regarded as a threat to the very fabric of the nation, whose arrival would herald some sort of social collapse.

That never happened of course, but ITV has gone from strength to strength, moving from vulgar upstart to establishment grande dame. It has enjoyed something of a creative and commercial renaissance in the last few years, with its share price riding high and a number of international hits like I’m A Celebrity, Downton Abbey and Broadchurch, not to mention huge domestic properties such as Coronation Street and X Factor, whose ad spots are still the most expensive and in-demand in UK broadcasting.

Yet ITV (and here I’m talking about ITV plc rather than the network) has something of a problem, one that is two-fold. First of all, despite its huge size (revenues of £2.6bn last year, profits of £651m), ITV is something of a minnow internationally compared to the likes of Viacom and [Virgin Media owner and ITV shareholder] Liberty Media; and even the BBC and Sky.

ITV has dealt with this by moving from its old regionally based model (Granada, Thames, ATV, Tyne Tees, etc) to a national and international one, but in an industry dominated by consolidation and huge multinationals, ITV looks vulnerable to a hostile takeover.

Its other big problem is the increasing fragmentation of the viewing audience. The days when Corrie (and even, on occasion, Emmerdale) could command 15 or 20 million viewers are long gone. ITV management has attempted to address this by launching niche channels such as ITVs 2, 3 (drama) and 4 (male-oriented content including sport), ITV Be, CITV and Encore; it also has a catch-up service, although observers say it lags behind both the BBC and Sky.

The broadcaster has been searching around the past few months for acquisitions (earlier this year it bought Talpa, maker of The Voice, for an eye-watering £780m), and it came as no surprise this week that it finally snapped up the TV business of UTV – which it has been courting for the past two months – for £100m.

UTV is a remnant of the old ITV regional company model, having started life way back in 1959 as Ulster TV as the first commercial television channel in Ireland. It still makes and broadcasts many of Northern Ireland’s most-watched shows, including Kelly, UTV Live and Counterpoint. It has also made programmes for Channel 4 and the ITV network.

The deal excludes UTV Media’s radio businesses (including the phenomenally successful talkSPORT, the world’s biggest sports radio station) and its digital media businesses, Simply Zest and Tibus Digital. The radio stations are responsible for about 60 per cent of UTV Media’s revenue. That part of the business which is not being sold will be renamed at a later date, but it looks as if UTV will become a radio and digital business.

ITV said it has no plans to change the on-air branding, meaning the UTV name will remain rather than becoming ITV Northern Ireland.

So what does ITV get for its £100m (assuming it gets the thumbs up from UK and Irish broadcasting regulators)?

At first glance, it looks like a pricey deal. In August, UTV reported half-year profits of just £1m on turnover of £58.3m. That compared to profits of £10m in the same period of 2014. Turnover in its Northern Ireland television business was down by 2 per cent in the first six months of the year, reflecting an 11 per cent decrease in advertising revenue from Belfast. Meanwhile turnover from its recently launched television channel, UTV Ireland, fell below expectations as a result of a slower build in audience numbers.

But there’s much more to it than that.

ITV is thinking long term. First of all, the two companies have a long-standing and close relationship. Secondly, for those with long memories who recall the disastrous £120m purchase of Friends Reunited a decade ago, ITV is buying into broadcasting, the business it does best and knows best. UTV is easily the most watched channel in Northern Ireland, with audience figures higher than those for the BBC in the region.

Thirdly, it shores up ITV’s position as the broadcaster of choice for advertisers looking for mass audiences. No other commercial broadcaster – not Sky One, not Channel 4 and not Channel 5 – can offer the reach that ITV can. According to most estimates, it controls about 20 per cent of the UK TV audience, and following the UTV deal, will have 13 of the 15 commercial licences (leaving just Grampian and STV in Scotland).

Fourthly, it continues ITV CEO Adam Crozier’s sensible strategy of concentrating on format creation and programme-making (rather than advertising) as the main source of revenue: if it can keep turning out Downtons, it will be protected from any advertising downturns. UTV has a programme-making unit and understands the Irish audience well. And of course the revenues UTV generates from these activities stay in-house.

UTV has most relied on advertising, but under its new ownership it will be protected in the same way as its parent.

So where does all this leave ITV? In a strong position, I’d argue. Although still a minnow by the standards of international broadcasting, it punches way above its weight, thanks to the output of ITV Studios.

But I also think UTV will be the last acquisition of its type, at least for a while. ITV making a move on Grampian and STV could be political dynamite, especially given the Scottish independence debate. Channel 5 is owned by Viacom. Channel 4 could be privatised by the current government, but any move Crozier made on that broadcaster would probably attract regulatory scrutiny.

I think the way forward for the broadcaster is to acquire more creative talent in the form of programme-makers. It gets back to something we’ve talked about a lot in our blogs this year – content. A subject we’ll be returning to again in the coming weeks and months.