Strategic Report
Operating and Performance Review continued
Broadcast & Online street was weak while supermarkets Viewing The media environment in which we increased their spend and some of the On-screen we performed strongly with operate is constantly changing. Our Broadcast FMCGs returned to spend in the second half viewing up for the second consecutive year. & Online business is robust and evolving of 2017. Entertainment & Leisure was down, We increased our spend on entertainment to take advantage of the signifcant impacted by tough comparatives from the but sports costs were lower as a result of opportunities for growth. European Football Championship in 2016. there being no major sports tournament Cars and Telecommunications increased in 2017. ITV through its free-to-air channels offers their spend around product launches and unique audience scale and reach as well digital brands continue to spend heavily ITV Family SOV grew 2% with a strong as the key demographics demanded by on television to build brand awareness. performance across the schedule. This level advertisers. The ITV Hub, the digital home of growth is the second biggest in ITV’s for all our channels and content, is growing Total costs were down as the cost savings recent history and never before has ITV rapidly, driven by viewers’ appetite for catch and lower schedule costs offset the increased delivered two years of consecutive growth. up and VOD and the quality of our content. investment on the ITV Hub, ITV Hub+ and ITV Daytime shows including Good Morning We continue to explore and trial new ways, Box Offce (our pay-per-view channel used Britain, This Morning and The Chase grew both free and pay, to distribute content to to show boxing matches). their audiences and Coronation Street broadcasters and platform owners as well and Emmerdale continue to perform well as directly to consumers. Overall Broadcast & Online adjusted EBITA and are now the UK’s two largest soaps. declined 7% to £599 million (2016: £642 We launched the sixth weekly episode Financial performance million) which has led to a one percentage of Coronation Street in September, which Broadcast & Online total revenue was point reduction in the adjusted EBITA margin has further strengthened its performance. down 3% in the year at £2,075 million (2016: to 29% (2016: 30%). We successfully aired a range of new dramas £2,132 million). We delivered 7% growth in Online, Pay & Interactive, driven by double- 2017 2016 Change Change Twelve months to 31 December – on a continuing basis £m £m £m % digit growth in online advertising, but this NAR 1,591 1,672 (81) (5) was offset by the 5% decline in NAR. Including sponsorship, VOD and self-promotion, Online, Pay & Interactive revenue 248 231 17 7 ITV total advertising was down 3%. SDN external revenue 70 67 3 4 Other commercial income 166 162 4 2 Advertising categories such as Retail, Finance Broadcast & Online non‑NAR revenue 484 460 24 5 and Food continued to see declines due Total Broadcast & Online revenue 2,075 2,132 (57) (3) to the uncertain economic outlook, along Total schedule costs (1,025) (1,050) 25 (2) with the weaker pound causing inflationary pressures, leading advertisers to reduce Other costs (451) (440) (11) 3 spend in order to maintain margins. Within Total Broadcast & Online adjusted EBITA 599 642 (43) (7) Retail, spending has been mixed: the high Adjusted EBITA margin 29% 30%
Good Karma Hospital was the third most watched drama on ITV in 2017, averaging 6.9 million viewers and a 26% share. It has been recommissioned for a second series in 2018.
24 ITV plc Annual Report and Accounts 2017 Operating and Performance Review Strategic Report Governance
Diana, Our Mother: Her Life & Legacy was ITV’s highest rated factual in over 14 years. It had 9.4 million viewers and a 36% share. Financial StatementsFinancial
Unforgotten returned to ITV for its second series. It is produced by Mainstreet Pictures, part of ITV Studios UK. It averaged 6.1 million viewers and has been recommissioned for a third series in 2018. including Liar, Good Karma Hospital, and have seen a signifcant increase in Long-form video requests were up 34% Fearless, Bancroft and Little Boy Blue and our target demographics on ITV2 and ITV4. and online viewing consumption, which new entertainment shows, The Voice, The Our 16–34s share of commercial impacts measures how long viewers are spending Voice Kids, The Keith and Paddy Picture (SOCI) on ITV2 was up 17% helped by the online, was up 39%. The ITV Hub has now Show and Five Gold Rings, as well as new phenomenal success of Love Island as well been the fastest-growing public service sitcom Bad Move. We continued to drive as Celebrity Juice, Family Guy and American broadcaster online service for the last three signifcant audiences with our returning Dad. Male SOCI on ITV4 was up 12% helped years driven by the good user experience
brands such as Broadchurch – which was by ITV’s horse racing coverage, The French and great content and now has 21 million information Additional the most watched drama in the year – Vera, Open and the Isle of Man TT Races. ITV3’s registered users. Unforgotten, Victoria, Cold Feet, Ant & Dec’s viewing performance improved in the year Saturday Night Takeaway, I’m A Celebrity… due to the strong performance of dramas The ITV Hub helps ITV reach valuable younger Get Me Out Of Here! and Britain’s Got Talent. such as Midsomer Murders, Lewis and audiences – 75% of the UK’s 16–24 year olds Our news programming continues to Endeavour. ABC1 adults SOCI on ITV3 was are registered together with 65% of the UK’s perform well with highlights including our up 1% making it the most popular digital 16–34 year olds. Younger viewers increasingly General Election coverage, as does our channel for this demographic. use the ITV Hub for simulcast viewing, as sporting schedule with the Six Nations well as catch up, with programmes such as Rugby Championships and the launch of ITV Hub Love Island delivering record viewing with horse racing on ITV. Some of our schedule The ITV Hub, which is now available on 1.3 million simulcast requests for the fnal. did not perform as well as we had hoped, 29 platforms, continues to grow rapidly, for example The Nightly Show, Fearless and driven by viewing on mobile and connected We are using the insight we gain from our Bigheads, so will not return in 2018. televisions. The ITV Hub is now pre-installed registered users to develop more targeted on around 90% of all connected televisions advertising solutions and to increasingly drive We continue to target the hard to reach sold in the UK and launched on Apple TV, viewing through personalisation. In the year, demographics demanded by advertisers – Apple’s new TV app and Microsoft XBox we launched personalised ITV Hub home particularly young and male audiences – in 2018. pages for our audiences and have introduced through our digital channels and online, data-driven recommendations and mobile notifcations to registered users.
25 Strategic Report
Operating and Performance Review continued
ITV commercial audiences Strong advertising proposition As a result, ITV’s ‘Other commercial income’ While political and economic uncertainty increased by 2%, with new sponsorship has led advertisers to reduce their current around ITV horse racing and The Voice, 99 99 99 98 100 96 96 95 95 93 spend, television remains one of the offset by a reduction in third-party airtime most effcient and effective mediums for sales commission and revenue primarily advertisers to achieve mass simultaneous from UTV following ITV’s acquisition in reach. As viewing and advertising becomes February 2016 and successful integration
2017 more fragmented, the scale of advertising of the business. 96% that television, and particularly ITV, delivers 99% becomes increasingly valuable. Digital advertising is growing rapidly and 13 14 15 16 17 we have seen double-digit growth in our Over 3 million ITV’s unique ability to deliver mass VOD advertising revenues on the ITV Hub, Over 5 million audiences, as well as more targeted which delivers more targeted demographics demographics across the family of channels, and a high-quality, trusted and measured has enabled us to again increase our share environment for online advertisers. of the television advertising market (SOB) to 47.6% from 47.4%. ITV delivered 99% of all In 2017, ITV announced a trial for addressable commercial audiences over fve million and advertising with Sorenson on connected 96% of all commercial audiences over three Smart televisions. We have also launched million. SOV provides an overall measure a trial of a self-service portal so that any of viewing performance, but because business, however small, can easily access advertisers are buying scale and breadth advertising on ITV. of audience, SOV is not necessarily a direct indicator of advertising performance. Remain responsive to a changing media environment ITV aims to maximise further the value of Linear television viewing remains resilient its airtime and drive new revenue streams despite signifcant changes in the availability through sponsorship, interactivity and and delivery of content. On average viewers branded extensions. ITV utilises the core watched 203 minutes of television a day in assets of its strong brand and reputation, 2017. This is lower than 212 minutes in 2016 unique commercial relationships and quality and partly is due to there being no major production capability to deliver a wide sports tournament in 2017. The majority variety of marketing solutions. of viewing remains live at over 75% as Horse Racing moved to ITV from Channel 4 television continues to have the power in 2017 with races broadcast across ITV main to bring audiences together. VOD viewing channel and ITV4 during the year. continues to grow rapidly while PVR (recorded) viewing has remained relatively constant over the last few years at around 13%. Younger viewers are watching less linear television than they used to, but through delivering great content such as The Voice, Britain’s Got Talent, Saturday Night Takeaway and Love Island, television reaches around 90% of young people each week and remains their dominant choice of media.
Developing ITV’s digital broadcast assets We are further developing our social media assets across our international portfolio of programmes as live television continues to demonstrate a growing relevance as viewers increasingly connect and engage through social media. We now have over 160 YouTube branded channels and had around 20 owned and operated programme apps across the year which, together with our quality content, is driving signifcant growth in viewer engagement. Our programmes generated over 100 million interactions in 2017.
26 ITV plc Annual Report and Accounts 2017 Operating and Performance Review Strategic Report
We are continuing to develop the ITV Hub+, our ad-free subscription version of the ITV Hub, which while relatively small, tripled its subscribers in the year. We have extended the service across all platforms so subscribers can now watch on mobile, PC and connected televisions and launched it on Amazon. Governance Over the last few years we have also established a number of smaller pay propositions. We own a majority stake in Cirkus, a best of British SVOD service in the Nordics and Germany. We also have a general entertainment channel, ITV Choice, for emerging markets available in over 100 countries.
We are trialling ITV Box Offce, a direct to consumer pay per view offering which currently focuses on boxing and we have a number of live events based around our key brands, which build relationships directly with our viewers. For example, we have the Emmerdale Studios Experience, which
showcases the process of creating an StatementsFinancial episode of the soap, and This Morning Live, a shopping and lifestyle festival. Saturday Night Takeaway returned for Building our pay offering in the UK its 14th series in 2017 and averaged 7.9 million and internationally ITV also continues to license its channels viewers and a 37% share across the series returns As a creator, owner and distributor of sought and content across multiple platforms, for a 15th series in 2018. after content, ITV is well positioned to take including our HD digital channels and advantage of the opportunities that arise catch-up VOD on Sky and Virgin Media set from the changes we are seeing in digital top boxes and all our live channels and catch media and consumer behaviour. We must up VOD across their connected platforms. ensure that however our content is viewed We announced that ITV Encore will close and on whatever platform it is viewed on, as an exclusive Sky channel in 2018 which we are paid the appropriate value for it. allows ITV to distribute box sets more widely across multiple platforms. The closure As we look to build our pay offerings, we are of Encore will impact ITV’s pay revenues developing SVOD services to target direct in 2018. to consumer pay revenues. In March 2017,
we launched our US joint venture with the SDN information Additional BBC, BritBox, (with AMC Networks taking SDN generates revenue by licensing capacity a minority share), an ad-free SVOD service to broadcast channels, radio stations and offering the most comprehensive collection data providers on digital terrestrial of British content in the US. A version of the television or Freeview. It holds a licence service also launched in Canada in February with capacity for 16 broadcast channels, 2018 and we now have over 250,000 including ITV services and third-party subscribers in total. In 2018, we will explore channels. SDN external revenue grew opportunities for BritBox on other platforms, 4% driven by the full year impact of the include original commissions, and look to 16th stream, which was launched in 2016. roll it out further internationally.
Our pay offerings
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