STV has taken majority ownership of drama producer Two Cities Television, the company behind the critically acclaimed police series Blue Lights and Patrick Melrose, starring Benedict Cumberbatch, in a fresh boost for its increasing lucrative studios business.

The Glasgow broadcasting group’s studios arm took a 25 per cent minority stake in Two Cities in January 2020, with an option to increase that to a majority position upon the business becoming profitable. Following the initial investment, the Belfast-based company is said to have made “significant progress”, producing two series of Blue Lights for BBC One, with the second series due to air in 2024. This follows previous success with Bafta award-winning show Patrick Melrose for Sky and Showtime.

Currently, Two Cities has additional high-end drama series secured which will deliver forecast revenues of £55 million over the next three years. STV Studios has now increased its stake in the drama production company to a majority holding of 51 per cent for an undisclosed sum.

Police series Blue Lights launched to rave reviews and very strong ratings. Picture: BBC/Gallagher Films/Two Cities Television

Founded in 2016, Two Cities is led by Michael Jackson - formerly controller of BBC One and BBC Two, chief executive of Channel 4, president of programming at USA Entertainment and chairman of Universal Television - and creative director Stephen Wright, formerly head of drama for BBC Northern Ireland where he commissioned Line of Duty and The Fall.

Simon Pitts, chief executive of STV Group, said: “Michael and Stephen have delivered significant creative and commercial success on the back of the standout performance of Blue Lights and there is so much more to come. STV’s consolidation of Two Cities is clear evidence of the ongoing success of our Studios strategy of taking minority stakes in high potential production companies. We’re very proud to be in business with Two Cities and look forward to our continued partnership.”

STV Studios has grown into one of the UK’s top producers of scripted and unscripted content and Scotland’s largest production group, with stakes in several production companies. It acquired Greenbird Media’s extensive network of independent production companies in July 2023, significantly increasing the number of creative labels in the STV Studios family to 24 and its portfolio of returning series to nearly 40. STV Studios is responsible for a wide range of series such as prison drama Screw, Bridge of Lies and Celebrity Catchphrase.

David Mortimer, managing director of STV Studios, said: “Two Cities remains a natural partner for STV Studios, producing high-quality drama across the UK and beyond. Their brilliant police series, Blue Lights, truly put them on the map, launching to rave reviews and very strong ratings in 2023.”

Simon Pitts, chief executive of STV Group: 'We’re very proud to be in business with Two Cities and look forward to our continued partnership.'

In a joint statement, Wright and Jackson of Two Cities added: “The STV team have been incredible partners. The company is beginning to find its feet and we are thankful for all the support from STV Studios in getting Two Cities up and running. Their continued investment and partnership will allow us to develop and grow.”

The deal is the latest feather in the cap for STV Studios, whose in-house drama, entertainment and factual teams have produced hundreds of hours of television, including Apple TV+ thriller Criminal Record (a co-production with Tod Productions), Bafta and international Emmy award-winning TV film Elizabeth Is Missing (for BBC One) and a number of auction-based series, including the long-running BBC daytime hit Antiques Road Trip.

Roddy Davidson, an analyst at house brokerage Shore Capital, noted: “Today’s release does not disclose the cost of this investment but does highlight the company’s expectation of ‘material’ future earnings enhancement. The timing of the latter will depend on when secured productions are delivered, so we are not changing our estimates for now. However, from a financial perspective, this deal looks a highly attractive conduit to majority ownership of a growing business with a substantial revenue pipeline.”

Johnathan Barrett of Panmure Gordon said: “The expansion of the Studios operation and focus on highly commercial returning series has altered visibility and quality for the business. Two Cities Television is an excellent example of the strategy working well.

“STV has essentially funded a number of proven executives by taking small stakes in early-stage businesses with rights to increase as they execute (profitability achieved). Today’s increase in the ownership of Two Cities helps lock in some of that value creation. STV is backing 24 labels, and we expect to see more evolve to become successful businesses.”

In November, STV said it expected its operating profit to be hit by weak UK television advertising revenue and the impact on the rate of programme commissioning. It flagged an operating profit of about £20m for 2023 amid “UK macroeconomic uncertainty”. That came despite overall revenue increasing by 30 per cent for the first nine months of the year.

The group noted that revenue from the fast-growing studios business would nearly treble this year to £65m-£70m, compared with a £40m target, with operating profit of “at least” £5m. Regional advertising was down 10 per cent for the nine months to the end of September 2023, against a national decline of 14 per cent.

Pitts told investors at the time: “We remain confident in our future growth prospects, with a strong content line-up on STV and STV Player, a compelling pipeline of new programme ideas across the expanded STV Studios, and a clear growth strategy, ensuring that we are well placed for the economic recovery when it comes.”

Interview: STV chief executive Simon Pitts on creating further growth episodes for the broadcaster

STV takes majority ownership of producer behind critically acclaimed police drama Blue Lights: reaction

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