Dame Carolyn McCall is a year into her tenure as chief executive of ITV and the clock is ticking. Bank of America Merrill Lynch and Ebiquity are among those to warn the shift is accelerating from TV to online consumption, especially among 16- to 34-year-olds, whose viewing of linear broadcast TV has dropped by a third in five years. Britain’s most popular commercial broadcaster is in a race to become fit for purpose in the era of global, streaming giants and data-driven, addressable advertising.
"We have got to evolve what we do quite quickly," McCall tells Campaign as she prepares to unveil plans for a subscription video-on-demand (SVOD) streaming service at the end of February. Details are under wraps but it could be a watershed move for ITV for two reasons. First, ITV has been a champion of the power of mass, simultaneous free-to-air reach for advertisers for 60 years. Second, there is the intriguing possibility that ITV will team up with the BBC and others such as Channel 4 to create a joint SVOD platform, dubbed "a British Netflix".
McCall backed the idea because she says UK broadcasters need to collaborate to support home-grown content and an alliance would mean "more breadth and archive content" if an agreement can be reached. She admits: "SVOD is bold. I don’t think it’s going to be easy. But we have to gain the skills in that area."
ITV still has its online advertising model, known as AVOD (advertiser-funded video on demand) – and online revenues, chiefly from the ITV Hub platform, jumped 43% in the first nine months of 2018. However, the consequences of not going into SVOD would mean ITV was not trying to keep up with Netflix and Amazon, according to McCall: "If we’re not in it, we’re not going to be able to play in the game."
Jonathan Helliwell, an analyst at stockbroker Panmure Gordon, credits her for making "a big tone shift" on collaboration with rivals that sends a positive message to the media industry.
Whatever ITV does with SVOD, "it’s going to take some years to establish", according to McCall, who has set a target of £100m in direct-to-consumer revenues by the end of 2021 – a fraction of ITV’s near-£2bn a year in ad sales.
'More than TV' strategy
McCall launched a new strategy, "More than TV", last year and it serves a dual role, emphasising ITV’s need to diversify commercially and its wider impact on culture and society beyond TV.
She has restructured the ad sales team and invested in a glossy ad campaign, "Great characters make great drama", backed by £10m in extra marketing spend. The work has a confident, epic tone as ITV seeks light, upmarket viewers.
And she has pushed ITV initiatives such as Veg Power, a campaign to get children eating more vegetables, and the Daily Mile – both of which demonstrate "purpose" as a costly crackdown looms on high fat, salt and sugar food ads.
Brexit uncertainty is a major worry but ad sales held up last year and were roughly flat as ITV’s viewing time and share of viewing on TV both rose, and online views on the ITV Hub jumped on the strength of Love Island, a key show for 16- to 34-year-olds.
McCall has made logical, early moves but "played it too safe for our tastes", according to Andrew McIntosh, head of TV analysis at Enders Analysis.
And Helliwell says: "It all depends on how long the burning platform of broadcast TV has got. If it’s got 20 years, then it’s fine. If it’s five to 10 years, then she should be more radical."
A focus on creativity and planning
McCall has brought in a lot of executives, including a chief financial officer, from her previous employer, easyJet, but kept the top ad sales duo, Kelly Williams and Simon Daglish.
As part of the restructure, Kate Waters joined from creative agency Now to be director of client strategy and planning, heading a new team that will focus on "broader and deeper" strategic partnerships with advertisers.
McCall says ITV should be a business partner, not just a media partner, for clients: "It’s about what we can do on the non-spot stuff that is different, creative, interesting, developmental, experimental. You can do that only if you understand what businesses are trying to deal with – and it is tricky [economically] out there."
McCall insists ITV remains "very plugged in" to agencies and "it’s not about disintermediation" as they remain vital for trading. However, she and Williams feel there is a gap. Many advertisers have been "cutting and cutting" the money they pay agencies and "the whole art of planning is being undermined", Williams told ITV’s investor day.
Phil Georgiadis, chairman of Publicis Media UK, welcomes McCall’s direction of travel so far, saying he has seen "more collaboration, more access to more solutions and a real sense that nothing is taken for granted". Tom George, CEO of Group M UK, adds McCall has an "acute awareness" of the need to "future-proof ITV", especially in tech and data, and to "re-engage with clients at the most senior levels – something the big tech platforms have excelled at".
When will CRR be ripe for a challenge?
McCall has resisted challenging Contract Rights Renewal, the 2003 legislation that gives advertisers the right to keep historic share deals. Critics say trading on share of TV revenue, rather than volume, is anachronistic when marketers are investing huge sums in YouTube and Facebook.
"If broadcast TV has got 20 years, then it's fine. If it's five to 10 years, then McCall should be more radical"
— Jonathan Helliwell, analyst, Panmure Gordon
If McCall believes in "more than TV", should she push for a "more than share" approach to trading? "You make a really good point. If I had to say in a detached way, ‘Is CRR the most future-facing way of trading TV?’, most people would say it’s not," she concedes. "It was set up years and years ago to contain ITV when it was a dominant force and lots has changed."
However, she fears a challenge would be "very arduous – it’s not to say we’re not going to do that at any stage. For the forseeable time, it wouldn’t be right for us because we’ve got so much to deliver in terms of the tech, data, analytics, the Hub, the client team, the creative partnerships."
Ad tech and the future of TV advertising
Advertisers want McCall to invest more in advanced advertising and shareholders have asked why ITV hasn’t gone into partnership with Sky’s AdSmart. "Our focus is on ensuring we have the right ad tech partner to develop our own ability to segment our own audiences on the Hub," she says, explaining ITV didn’t want to pay to use Sky’s tech and "leak away" value.
Targeting is vital because some marketers are moving from a brand-focused to a performance-driven approach. "I think they can do performance with ITV," McCall says, pointing out how ecommerce companies such as Just Eat use TV for both "branding" and "click-through". And she promises: "When we have the ad tech that we want, we’ll be able to compete even more and demonstrate that performance."
Some digital evangelists think all TV trading will be biddable and automated in a decade’s time and ITV will barely need an ad sales team, but McCall isn’t convinced: "Of course, there’s going to be quite a lot of stuff that people can just do [through automation] but that is really about spot advertising. You can see, in 10 years, that might transpire – I don’t know, but we’ll see. What machines can’t do is talk to clients and understand what they’re doing and what they want to do and what talent they want to associate with and what talent they want to work with."
How else might ITV diversify?
ITV continues to expand programme-making arm ITV Studios, which sells shows around the world. Why not also increase scale in advertising by acquiring in another medium as Global has done in out-of-home? It is "very tempting on occasion" and "was one of the things I thought about when I got here", she says, but "it would just increase your exposure to what is a cyclical business".
She thinks ITV, a rumoured takeover target itself, has other opportunities. The broadcaster has "never taken any sizeable money from the consumer" yet it has "deep fan relationships", McCall says, describing how some viewers want to hug Holly Willoughby or Susanna Reid when they meet their favourite TV star. "There’s a lot of emotional connection there. They feel part of ITV," McCall says. "People want to meet people and they want to show other people they’ve made a human connection. It’s just a human need."
But there’s little time for sentimentality. McCall needs to ask shareholders "for higher investment in content, SVOD and ad tech", McIntosh believes. "The speed of change in consumer viewing behaviour requires a radical shift in priorities for ITV, not just a ‘strategic refresh’."