About ITV

Market review

The market environment in which we operate is dynamic and constantly changing.

Consolidation of media and telecoms companies and the increasing influence of technology brings both challenges and opportunities that we believe we are able to respond to with pace and confidence.

Key market trends

Global Content

Global demand for content continues to grow, with more channels, more platforms and new entrants increasing spend on high-quality programming. We estimate that the global content market is growing at around 5% per annum, with some genres such as drama growing faster than others.

This growth can be attributed to a number of factors, including: a larger international pay television market; the consolidation of pay providers with content companies and distributors coupled with the convergence in the television market, where telecom and new media companies are competing with traditional media companies for content and viewers; online players such as Netflix and Amazon investing heavily in new original content and archive; and online advertising driven platforms like YouTube and Facebook creating a new market for short form and digital content.

The US is by far the largest content market in the world, dominating the global production sector, with the UK the second largest market. This represents a significant opportunity for ITV Studios, which has a strong presence in both regions. Demand for drama, particularly US drama, has increased significantly in the last few years. Original scripted content becomes brand defining for broadcasters and over-the-top (OTT) players in an increasingly competitive global environment. US studios continue to dominate the market for drama in the US and internationally. However, the rise of Netflix and Amazon, who are investing heavily in creating high-quality original scripted content, has significantly increased competition in the market.

This increased competition for high-quality content has driven up the cost of production. Deficit financing has therefore become increasingly important in financing productions, where distributors are often funding the difference between what the content buyer is paying for the original broadcast and the cost of production, which is then covered by global sales, second-run windows and sales to OTT providers. ITV as a distributor as well as a producer is in a strong position to deficit finance its own productions and therefore produce high-quality content and retain the rights to it.

Leveraging our network relationships and international distribution network, we are looking to expand our global scripted business and develop a strong portfolio of international and returning drama.

ITV America has developed several scripted programmes over the last few years and has a healthy pipeline of content in development. Our 2016 scripted deliveries included The Good Witch and Aquarius and scripted deliveries for 2017 are expected to include Sun Records, Somewhere Between, a pilot of Snowpiercer and the third series of The Good Witch.

In the UK, there is stronger demand and higher viewing figures for UK content over imported series. We are a major producer of scripted content and have further reinforced this position through our acquisitions of Mammoth Screen and Twofour Group in 2015. Our 2016 scripted deliveries in the UK included Victoria, Cold Feet, Poldark and Witness for the Prosecution. Scripted deliveries expected in 2017 include Prime Suspect 1973, Fearless, the second series of Victoria and the second series of Cold Feet, all of which have international appeal.

While not growing as quickly as scripted content, demand for non-scripted content remains strong as networks continue to require lower cost, high volume popular series. The UK remains the dominant producer of unique non-scripted formats. ITV significantly strengthened its capability in this area with the acquisition of Talpa Media in 2015. Along with the established entertainment and factual entertainment genres, scripted reality programming, where we have focused our US acquisitions, has grown quickly with formats such as Pawn Stars, Real Housewives and Fixer Upper.

ITV is now a genuine global player in non-scripted content, being a leading unscripted independent producer in the US and Europe as well as the largest commercial production company in the UK. The large independent production companies, such as Endemol Shine Group and Fremantle Media, continue to be ITV Studios’ main competitors in non-scripted content.

Broadcast & Online

Television viewing

Over recent years the number of ways to watch TV has greatly increased with viewers able to choose a variety of platforms, both free and pay. Traditional linear television viewing remains resilient despite significant changes in the market and in the availability and delivery of content. Viewing habits also vary by demographic with younger viewers watching more non-linear content than older demographics.

In the UK linear television viewing remains the most popular form of media entertainment despite year-on-year fluctuations. UK average television viewing in 2016 was 212 minutes per day which is similar to 2015 (216 minutes) and a similar level to ten years ago (Source: BARB).

Non-linear viewing, while currently only a small proportion of total viewing, is growing fast, particularly via Subscription Video on Demand (SVOD) services such as Netflix and Amazon, which have seen exponential growth over the last few years. We continue to invest in ITV’s online offering, the ITV Hub, along with rolling out our SVOD service, BritBox in the US to enable us to compete in this market.

ITV competes for viewers with the BBC and commercial broadcasters including Channel 4, Sky and Channel 5. Over the last few years, the number of available channels has grown which has impacted the Share of Viewing (SOV) of the traditional broadcasters. SOV for the other channels increased to 21.7% in 2016 from 21.1% in 2015. Despite an increase in the number of channels, ITV and BBC1 continue to be the only channels consistently able to deliver mass audiences as well as targeted demographics, and in 2016 ITV delivered 99% of all commercial audiences over five million viewers and 95% over three million. In 2016 the ITV family of channels increased their SOV to 21.4% (2015: 21.2%), second only to the BBC’s family of channels at 31.9% which lost share during the year (2015: 32.7%) as a result of BBC3 moving online.

*Viewing data is based on Weeks 1-52 for 2016 compared to Weeks 2-53 for 2015.

Share of viewing by broadcaster: ITV Family 21.4%, BBC Family 31.9%, Channel 4 Family 10.5%, Five Family 6.2%, Sky Family 8.3%, Other 21.7% : Source: BARB*

Pay television

Free-to-air television in the UK is delivered through services including Freeview, YouView and Freesat, while linear pay television is delivered through operators such as Sky, BT, Virgin and Talk Talk. The platform mix between free-to-air and traditional linear pay television has remained constant for a number of years at around 50:50. Linear pay television revenues continue to grow but the market dynamics are changing rapidly as established pay television providers such as Sky and Virgin face increasing competition from relatively new entrants to the market such as BT, Netflix and Amazon.

Increasingly homes are supplementing their free television with other forms of paid content including SVOD services such as Netflix, or by purchasing additional channels through ‘no-contract’ providers such as Now TV or Talk Talk TV Store. Around 30% of homes in the UK have an SVOD service and this is weighted towards those homes that have linear pay TV (Source: BARB). Including SVOD pay services, the platform mix in the UK is roughly 40% free-to-air and 60% paid viewing.

ITV participates in the pay television market, earning revenue from various third parties, including Sky and Virgin, through the licensing of channels and content. ITV also has its pay only television channel, ITV Encore, on the Sky platform along with our other pay channels, ITV2 HD, ITV3 HD and ITV4 HD.

ITV also recently announced the creation of a joint venture with the BBC to launch BritBox, a new SVOD service in the US. The service offers a significant amount of content from both broadcasters and gives ITV access to the fast growing SVOD market in the US.

The platform mix in the UK is roughly 50% free-to-air and 50% linear pay TV.

Non-linear viewing

Non-linear viewing of long-form content includes recorded, or timeshifted viewing (up to 28 days) and catch-up of live television (linear television - up to 7 days), and also encompasses Video on Demand (VOD) and OTT delivery of other long-form content such as box sets and movies.

While non-linear viewing has grown fast it still accounts for a small proportion of total viewing time. In the UK we estimate 81% of all viewing of legal long-form content is live (including simulcast), with a further 12% timeshifted via a Personal Video Recorder (PVR) and watched within 28 days of the original broadcast date. Of the estimated 7% of content viewed on demand, 3% is catch-up viewing of broadcaster content via the television set or to other devices such as tablets and mobiles. The remaining 4% of content is other VOD viewing, where viewing of box sets via services such as Netflix is replacing viewing of DVDs. This is growing quickly driven by increased availability of devices such as smartphones, tablets and connected televisions.

There is currently no industry measure for online viewing. BARB are in the process of developing a joint-industry, audited measure of viewing online television.

Long-form content viewing: Live (including simulcast) - 81%, Timeshifted (PVR) up to 28 days - 12%, VOD: Broadcaster catch-up - 3%, VOD: Other - 4% : Source: 2015 Internal estimates

Advertising revenue

ITV generates revenues from advertising through traditional broadcast, sponsorship and online, and competes with commercial broadcasters and other advertising media, for its advertising revenues. In the UK, television advertising (including Video on Demand (VOD), sponsorship and other television revenues) continues to hold a significant share of the overall advertising market with a share of 27.5% in 2016, (2015: 28.7%). Internet advertising (search, classified and display) has grown its share to 46.6% in 2016 (2015: 42.7%), making the UK one of the most developed markets for online advertising. This growth is at the expense of print advertising, which declined to 15.6% in 2016 (2015: 18.2%).

The UK television advertising market is extremely difficult to measure as all broadcasters have different definitions. We estimate ITV’s Share of Broadcast (SOB) (which is based on pure linear television advertising excluding VOD, sponsorship and self promotion) to be 47.4% in 2016 (including UTV), up from 44.7% in 2009. This increase is because of ITV’s unique ability to deliver mass audiences across multiple regions and in key demographics.

Television’s share of the advertising market: Television - 27.5%, Press - 15.6%, Radio - 3.3%, Cinema - 1.3%, Outdoor - 5.7%, Internet - 46.6% : Source: Advertising Association January 2017

Our strategy

Our strategy is focused on three key priorities: maximising, growing and building.