ITV and the drama of a company that refused to switch off

Published on Wednesday 2 March 2011 16:49

THE difference in atmosphere could not have been starker as Adam Crozier, dressed in his usual uniform of dark suit, light shirt and open collar, stepped up to the podium to address some of the Square Mile's brightest media minds on Wednesday.

The ITV chief executive, who was drafted in last April, was in a jokey mood as he unveiled a near-trebling in annual profits.

Just seven months earlier, Crozier had stepped up to the same platform to deliver his maiden City presentation after jumping ship from another troubled organisation, the Royal Mail.

On that occasion, Crozier was in no mood for small talk as he delivered a damning analysis on what he found when he walked through the doors of ITV's headquarters on his first day. "Not currently fit to compete" was one of the kinder indictments of the organisation he and chairman Archie Norman inherited from Michael Grade, the boisterous executive chairman who was welcomed by a standing ovation when he rejoined ITV in 2007, only to leave three years later under a cloud as ITV struggled to keep its head above water, having slumped to a 2.7 billion loss in 2008.

But last week Crozier even cracked a few jokes as he presented the firm's annual results, which saw profits climb to 321 million from 108m the previous year.

"Six or nine months ago I looked younger and didn't wear glasses, so clearly ITV is having an effect on me as well," the 47-year-old Scot quipped.

It's no wonder he was in a lighter mood: investors jumped on ITV shares, pushing them 9 per cent higher on Wednesday as Crozier and Norman also promised a resurrection of the dividend payment.

The market's reaction represented a sharp turnaround from the summer when some analysts were close to writing off ITV as a basket case. Lorna Tilbian, a media analyst at Numis Securities, suggested at the time that the best Crozier could do would be to "fix ITV up around the edges" and sell it off to a rival.

Last week, Tilbian was more optimistic about the firm's fortunes, describing the latest figures as "very robust" and upping her forecast for this year's pre-tax profits.

ITV is likely to spark further positive headlines this week, as it is one of the contenders to re-enter the FTSE 100 when the index is reshuffled on Wednesday.

Crozier and former Asda boss Norman knew that the annual results would come under particular scrutiny, as they would offer the first glimpses of how their "transformation plan", unveiled in August, was working.

Upon his arrival at ITV, Crozier identified several key areas for change. He set out an ambitious plan to bring the broadcaster into the 21st century - reducing its dependence on traditional television advertising, increasing revenues from growth areas such as the internet and pay TV, and announcing a shake-up at ITV Studios, the firm's production arm that hadn't produced a hit show since Dancing On Ice first appeared in 2006.

Last week he insisted progress had already been made on the programming front. ITV has had a number of recent hits, he said, including Downton Abbey.

Despite the euphoric reaction from investors, however, Crozier refused to pop the champagne corks prematurely, warning that the outlook for 2011 remains "uncertain", as the advertising market could be in for another battering if high street retailers trim their spending as a result of shoppers tightening their belts.

Toby Syfret of Enders Analysis warns that the resurgence in profits was driven almost exclusively by the recovery of the TV advertising market - an area upon which Crozier is ironically seeking to reduce ITV's dependence.

"A lot of the profit really reflects a terrific recovery in advertising last year and the benefits of cost reductions," Syfret says. "That's all happened without the transformation. The programming revenues for ITV Studios are down significantly and online has hardly budged."

Although Crozier and Norman have won initial brownie points from shareholders, Sam Hart of Charles Stanley also argues that ITV is by no means out of the woods.

He says they have a hard task ahead to make ITV fit to withstand the major structural changes in the industry - including the continued fragmentation of audiences and migration of viewers away from terrestrial channels to the internet and pay-TV.

"At this stage I wouldn't attribute a huge amount (of the recovery in profits], if anything at all, to the action being taken by Adam Crozier and Archie Norman," Hart says. "Given the structural changes going on in the industry, the jury remains out at ITV for the time being. The real test is going to be when the next downturn in TV advertising arrives."

Crozier and Norman have made a great to-do about the management clearout at ITV Studios, having poached Kevin Lygo, the former director of television and content at Channel 4, and Denise O'Donoghue, co-founder of Hat Trick Productions, to lead the overhaul. But Hart is unconvinced that much progress has been made, despite the management reshuffle.

Some investors hope that broadcasters such as ITV and Channel 4 will benefit from the recent lifting of rules on product placement in Britain, allowing programme- makers to receive a fee in return for giving certain goods a prominent showing.

But the City is growing increasingly sceptical that ITV will ever survive on a diet of much else other than traditional TV advertising.

"Personally I don't think so," says Syfret of Enders Analysis. However, he insists that the Square Mile should continue to throw its weight behind Crozier and Norman - no matter how ambitious or unrealistic their plans may be.

"They are one of the few challengers to Sky's increasing dominance of the TV market, he says. "They have to go for it, particularly as Sky is getting stronger. For free-to-air it's very important that ITV maintains its strength."