ITV in crisis as revenues take a dive

Chief executive Charles Allen quits as ITV predicts 14 per cent fall in third-quarter ad revenues. Darren Davidson reports.

ITV's crisis deepened this Wednesday with the announcement of plummeting ad revenues at its flagship ITV1 channel. A disastrous revenue performance at the broadcaster's main channel followed hot on the heels of Charles Allen's exit on Tuesday this week, and sparked a fresh wave of attacks on the company from advertisers and agencies.

ITV1 revenues were down 8 per cent during the first half, against a total fall in the TV market of 2 per cent. Operating profits rose by 9 per cent to £163 million as the group claimed its forays into digital broadcasting and attempts at revitalising its schedule were beginning to pay off.

However, the broadcaster predicted that its fortunes will worsen in the coming weeks with total ITV ad revenues for the third quarter declining by 14 per cent.

This followed a statement on Tuesday morning confirming that Allen will step down. Allen said he was fed up with criticism of his performance at ITV. "You can only take so many bullets," he added. And shareholders are said to have grown tired of ITV1's declining audience share and advertising revenues. John Cresswell, the finance director, will take on the role of interim chief executive from 1 October.

The broadcaster ruled out Cresswell as Allen's successor and set off one of the most anticipated selection processes in recent years. Sources close to ITV said they expected the search to be concluded by January. ITV has hinted that its board expects to appoint an "outsider".

Sir Peter Burt, the chairman of ITV, said he would encourage Whitehead Mann, the headhunter charged with identifying Allen's successor, to "trawl widely".

Allen's departure is likely to trigger private equity bids for ITV. In March ITV rejected a bid from a consortium led by Greg Dyke, the former BBC director-general. Dyke is also a front-runner for the chief executive job and has not yet ruled himself out of contention.

A rival bid could come from a consortium led by Roger Parry, the Johnston Press chairman, who had considered a bid for ITV, backed by Merrill Lynch, in April. Takeover Panel rules prevent him from renewing interest in ITV until October, after he decided against bidding.

A statement from Parry's office did not rule out a bid: "Roger worked in TV for seven years and feels passionately that programmes come first."

Parry's original plan is understood to have proposed splitting ITV into two businesses, with one overseeing scheduling for its channels and new-media outlets, and the other in charge of production.

Amid the confusion about its future, the ITV Sales team has been desperately contacting key buyers at media agencies to say it is "business as usual" after Allen's departure.

A priority for ITV is to force a review of the Contract Rights Renewal arrangements introduced as a condition of the Carlton/Granada merger. Many in the City blamed Allen over CRR but ITV said it is in dialogue with regulators over a review.

- Perspective, page 19

What should ITV do next? Post your views on: forum.brandrepublic.com

ITV'S RECORD OF WOE

October 2003: The Government gives the green light to the £2.6 billion merger of Carlton and Granada to create ITV plc. Contract Rights Renewal is imposed as a condition to protect advertisers post merger. Charles Allen, Granada's chief executive, lands the top job.

June 2004: It emerges that CRR could cost ITV up to £100 million in ad revenue during its first year. Allen and his team play down these suggestions.

September 2005: Heads roll at ITV as Allen plays the tough guy. On the eve of ITV's 50th anniversary, Allen ousts Mick Desmond, the chief executive of ITV Broadcasting. Graham Duff, the managing director of ITV Sales, had already left.

March 2006: A Greg Dyke-led consortium backed by Apax, Blackstone and Goldman Sachs bids 130p a share for ITV. The ITV board swiftly rejects the offer. Pressure mounts on Allen as ITV shares are soon trading below 100p.

July 2006: After a disastrous World Cup for ITV, during which large audiences failed to translate into ad revenue increases, ITV1 records its worst-ever audience share.

THE AD INDUSTRY'S PRESCRIPTION TO REVIVE ITV

- Jim Marshall, chairman, Starcom and IPA Media Futures Group

In terms of the business, Allen has a lot to be proud of. The area that needs to be delivered is the product. It now needs a programme advocate - someone with skill and expertise in programming. That's where the energy for the future needs to be allocated. I think what they need is an old-style programming man. Greg Dyke would fit the bill - he has the credentials but does he have the appetite?

- Paul Richards, analyst, Numis Securities

We would like to see renewed vigour and focus at ITV1. If you look at the major TV successes of recent years - Dr Who and Bleak House, for example - you don't feel ITV1 is innovative enough to provide those. Second, ITV needs continued good relations with the regulator. Important discussions over CRR are to be had. Analogue switchover and ITV's role in public-service broadcasting needs to be reviewed. Third, we need to see a bolder online performance from ITV.

- Bernard Balderston, associate media director, Procter & Gamble

ITV needs someone who can envision the future and put the organisation in a place to build on the platform Allen has built. They will need imagination to do that, as well as the ability to relate to ITV's customer base. It needs someone able to make the right appointments on the programming side. It can do better than it's doing. ITV will continue to haemorrhage money under CRR unless it arrests audience decline.

- Marc Bignell, joint managing director, OPera

ITV has been run by an accountant. Allen's biggest successes have been cutting costs and lobbying for legislative changes. I would like to see (and so would my advertisers) a stronger ITV in terms of audience size and reach. Arguably, the best heads of programming will not want to work for an accountant, so Allen's successor needs to be someone like Andy Duncan or Greg Dyke - a big-hitter with a proven track record.

THE FIVE FAVOURITES TO SUCCEED ALLEN*

Mike Clasper: 9/4 - Clasper is the wild card because he's not known in TV circles. A former chief executive of BAA, he is a non-executive director of ITV. He has some knowledge of the ad market after working in marketing at Procter & Gamble.

Roger Parry: 7/2 - The former Clear Channel chief executive and chairman of Johnston Press and Future Publishing declared his interest in bidding for ITV in April. This interest could be renewed in October when restrictions on him tabling a bid are lifted.

Greg Dyke: 4/1 - The former LWT man and BBC director-general would be a popular choice as chief executive. If overlooked for the role he may return with another bid for ITV, after he was knocked back in March.

Andy Duncan: 4/1 - The Channel 4 chief executive and former BBC marketer is perceived as having the necessary flair to take ITV forward. However, he might still be enjoying himself a bit too much at Channel 4 to take on the burden of ITV chief executive.

Stephen Carter: 6/1 - Carter enhanced his reputation while leading Ofcom and steps down in October. However, broadcasters have already started lobbying against him being chosen for the ITV job because he's had privileged access to their business plans.

*(Odds from Cantor Index).