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Broadcasters are doing it tough

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2023-11-10

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From the recent quarterly reports of major media organisations around the world, broadcast TV (or linear TV, which includes) cable are doing it tough.

In Australia, the market leaders, Nine Entertainment (ASX:NEC) and Seven West Media (ASX:SWM) this week confirmed that free to air tv advertising is currently down around 8% for the first quarter and a half of the 2023-24 financial year.

That was after a fall of around the same size in 2022-23 across metro and regional markets. Nine said the September quarter saw a 12% fall, but both networks said their streaming and video on demand businesses were still seeing small positive growth levels.

The culprits are similar, high inflation, high interest rates, higher energy costs constrained or falling consumer demand and spending and sticky prices. This week’s rate rise from the Reserve Bank and lifts to bank mortgage rates, will not help spending or ad rates recover by next June.

In Europe it’s all those factors, plus the lingering impact of 2022’s invasion of Ukraine by Russia and the damage that did to energy supplies, especially gas and the higher costs, confusion and dislocation that is still being felt in late 2023.

Parts of Europe are in recession or have been, there’s no growth and heading up to Christmas, consumer spending is not forecast to help at all.

That’s the background to two gloomy outlooks from a couple of Europe’s broadcast media giants - ITV in the UK which revealed a 7% slide in ad revenues and turnover in its linear TV businesses in the 9 months to September and RTL, owners of the Fremantle production house, as well as European broadcast TV operations, which posted a 10% slump in revenue for September quarter.

And, if it hadn’t been for strong performances from ITV’s production arm and newish streaming business with revenue increases of 9% and 23% respectively, ITV’s group revenue increase of 1% for the half, would have been a sharp fall of the size we saw from RTL.

RTL is based in Luxembourg and owns TV, and radio businesses in Germany, France and other parts of Europe, as well as TV production houses led by Fremantle. Unlike iTV which is independent, RTL is 76% controlled by the huge Bertlesmann media and publishing empire of Germany.

In both cases, the two companies blamed the revenue falls on weak TV ad spending in economies that are still struggling with high inflation, rising costs and little or no consumer demand for many of the products advertised.

Such has been the pressure on ad revenues at ITV’s linear TV businesses in Britain that its ITV Studios production arm now makes more revenue ( £1.52 billion) than the core TV broadcast businesses (£1.46 billion). The star was the streaming service ITVX with its 23% jump in revenue to a solid £340 million. Total revenue for the 9 months was £2.98 billion.

ITV warned that the studious business would suffer a revenue hit from the lengthy strike by US TV producers and actors (and before that the strike by writers). That will see revenue pushed from 2024 into 2025, while ITV will push around £10 million in content costs into 2024.

The company said it still will cut £50 million from costs between now and 2026 and it was on track to deliver £15 million of that figure in 2023. That cutting will have to continue - while iTV didn’t provide any earnings update in the 9 month report, it did reveal a 52% slump in interim pre-tax profits earlier this year to £152 million.

If anything the report from RTL was a bit gloomier with the 10% slide much steeper than anything ITV revealed. In fact ITV warned of what it called “persistent weakness” in the TV ad market as it revealed a 10% slide in third quarter revenues, driven by the lower TV ad market and spending changes by clients with the Fremantle production house.

Group revenues for the quarter were €1.6 billion, with timing effects at production arm Fremantle and the TV ad market cited as organic reasons. Full year revenue is now expected to be down about €100 million to €6.9 billion, while adjusted pre-tax profit will come in €50 million lower at €900 million.

TV ad revenue was down 3.7% and guidance has been changed from an expectation of small growth to mid-single-digit percentage” declines in the second half of 2023.

However RTL said the slide in Europe’s TV advertising revenue has "slowed significantly” in September. Fremantle saw revenue fall 21% in to €527 million in the third quarter.

Like ITV, RTL is charging into streaming and although losses this year are forecast to be €200 million - RTL+ and Netherlands VOD service Videoland now have 6.2 million paying subscribers between them, up 1.5 million or around 30% in a year, and streaming revenue rose 21% for the nine months to end-September to €236 million. RTL is still aiming for streaming revenue of €1 billion and profitability in 2026.

The bottom line is that broadcast TV - linear free to air and cable - is not in a good place right now and the outlook is for little or no improvement. 

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