ITV melts down

The UK stock market is in its summer doldrums and there’s an uncertain 17.9% shareholding overhang in ITV owned by BSkyB (and awaiting an Appeal Court decision). Neither fact is helping ITV out of its current mess.
ITV is now trading at around 44.6p, and represents a miserable performance for viewers and investors alike. In the perfect words of the Financial Times, ITV’s picture now looks “very fuzzy”, a statement which reflects Michael Grade’s own uncertain view of the broadcaster’s future.

Grade has been in the hot seat (as executive chairman) for a year, during which ITV’s value has fallen 67%, and trailed the UK media sector by 49%. Analyst comments are Negative, and this cannot do ITV any great favours other than to drive ownership into the hands of a third party. Morgan Stanley yesterday, in a note, issued a price target of just 41p, and the investment bank reduced all its key metrics on ITV’s performance.

In yesterday’s issue we drew attention to Grade’s comments on the amount of regulation that ITV has to work within. Morgan Stanley has a comment, saying that the bank considers any change in ITV’s Contract Rights Renewal obligations as “unlikely”. “Ofcom’s [chief exec] Ed Richards reiterated that the abolition of CRR is by no means a certainty given the level of advertiser concern over such a step being taken,” says the note.

Worse, perhaps, the bank’s report reminds us that Ofcom’s consultation process may last longer than expected, “moving the end date to 2010 and the first beneficial earnings impact until 2011. The core expectation remains 2009 completion for implementation in 2010, but this clearly introduces a risk factor.”

In other words, MUCH more uncertainty for Michael Grade, and ITV. Even taking out this CRR obligation only improves ITV’s potential position by 7p a share. Hardly meteoric. But Mr Grade is seeking a more all-embracing change of ITV’s Public Service Broadcasting remit (which costs about £300m a year), all the more important as the UK transitions from “old” analogue transmission to “new” digital TV.

Grade said: “Ofcom understands our predicament, but does not quite understand the urgency. Never mind next year, we could do with it next month. There is an important connection between the goodwill impairment and the PSB review. It is unarguable now that Ofcom needs to take quick action to redress the imbalance between the value of the licence and that which we are required to provide."

But regulators are not known for their speedy responses. Grade – and ITV – suffers from the “super-tanker” syndrome, where the vessel takes an age to deviate from its chartered course. It’s going to take time to bring new programming on, and for ITV to fully discover its niche channels – almost all of which are doing well.