With ITV making a £2.5 billion loss last year, Andrew MacLeod spoke to executive chairman Michael Grade to find out whether he’s got the X factor needed to rescue the flailing broadcaster

With ITV making a £2.5 billion loss last year, Andrew MacLeod spoke to executive chairman Michael Grade to find out whether he’s got the X factor needed to rescue the flailing broadcaster

Michael Grade’s ambitious turnaround plans for ITV appears to have been
badly buffeted by the economic storm lashing the UK and the rest of the developed world.

Advertising revenue is down and forecast to remain that way for some time to come, and annual losses for 2008 piled up to the tune of more than £2.5 billion.

As a result, once-sacrosanct programme budgets have been slashed by tens of millions – along with 600 jobs – in the economy drive initiated by Grade and the ITV board in an urgent attempt to bring expenditure into line with earnings.

“The business model we have is still an exciting one. It was in a state of some disarray when I arrived, but we are turning around many of the operational issues,”
said Grade.

The crunch question is this: Has the five-year turnaround for which Grade
was headhunted from the BBC been blown off course or can he and his board use the diversion provided by the economic downturn to their own advantage, by wielding the scalpel deeper and more daringly than anyone might have imagined?

Grade’s objective – and his only measure of success – is to restore shareholder value to Britain’s biggest commercial broadcaster, a business that has been under siege from all sides and which last year saw advertising revenues fall by eight per cent, to £1.3 billion.

First-quarter results for 2009 are forecast to be down by a further 17 per cent, with little realistic hope of a rapid bounce back, although he claims there is evidence that advertisers are returning.

Digital era
Many sage pundits had read the runes and foresaw a future in which upstart new media rivals were becoming dominant and capturing a greater share of younger viewers through online content delivered via laptops, PCs and mobile phones.

Indeed the goalposts have been moving at such an alarming rate that Grade
and his board have now jettisoned the revenue targets they set in 2007. That said, Grade is putting on a convincingly upbeat performance.

Despite being in the grip of what he describes as the “most challenging”
period he had known in more than 30 years as a broadcaster, he is adamant that the turnaround process remains a top priority, and that its objectives are far from unchanged.

“We are making progress in turning around the fortunes of the network – particularly ITV1,” he said.

“We are making progress, too, in Global Content, which is growing and a huge increase in video views online, which is another key leg of our strategy.”

Restructuring plans
Less successful, he admitted, thanks largely to the downturn, have been his attempts to turn the results of that progress into a decent return for shareholders who now know there will be no final dividend this year.

Nevertheless he added: “We continue to deliver mass audiences to our advertisers night after night and are holding our share of audience and of television advertising.”

ITV’s willingness to dispose of what it now perceives as non-core operations
is matched by its acceptance that the axe must be wielded more vigorously
in other directions.

The company has been acutely aware for some time of the threat posed by new media, and of its own lack of online offerings with which to combat it. The writing, it seemed, was on the wall, and the message wasn’t a pleasant one – plug into the brave new media world or go the way of Betamax.

Consequently ITV reportedly splashed out up to £170 million in cash and
shares three years ago to acquire Friends Reunited, the once popular social networking site.

Ditto for Scoot, the business search directory, which it bought for a more modest £3 million.

Unfortunately, earnings from Friends Reunited dropped £4 million in 2008,
to £18 million, partly because of the decision to end its charging system. It has been earmarked for disposal, along with Scoot and SCN, the multi-channel Digital Terrestrial TV (DTT) broadcaster.

Meanwhile itv.com’s revenues soared by 64 per cent to £18 million during
the year, drawing level with Friends on the way down.

Also on the auction block it seems is SDN, which was acquired by ITV several years ago for around £150 million, and operates a number of DTT channels. Some industry analysts say it could now be worth around £200 million.

Tough decisions
While it is true that these disposals will bring in some cash and provide
a satisfying shot in the arm for the M&A market, they are little more than a side show to the main turnaround event, the success of which remains to be seen.

In response to the revenue crisis, programming budgets have been slashed by tens of millions of pounds, although Grade insists that quality shows will continue to be produced, with more entertainment programmes being aired on weekday evenings.

To round off the list of money-saving measures he also unsheathed the sword with which he proposes to reduce ITV’s 4,500 workforce by 600.

Grade and his fellow directors seem willing to bite the bullet when it comes
to making unpalatable decisions, and although he danced around the issue of whether the recession encouraged a more vigorous use of the axe than might otherwise have been the case – the number of job losses was significantly larger than the unions had been expecting, for example – he conceded that the measures were “tough”.

“None of these decisions are easy,” he said. “These are hard decisions, but in the end you have to keep your eye on the fact that the cycle will turn, advertisers will come back, we will still be delivering the viewers and we will be a much leaner and fitter business as a result.

“The yardstick for success for us as a business is the return we offer our shareholders.

“We do that by delivering huge audiences, investing in fabulous UK content, and then getting the advertisers to pay a fair price for it.”