ITV's woes are creating a perfect storm throughout Britain's advertising market, blowing money away from traditional media such as TV, print and radio and even making waves in the cinema and outdoor poster markets, according to media buyers.
The only part of the national advertising market that seems to be benefiting from the dire situation into which ITV has been plunged by its declining audience and dropping advertising revenues, exacerbated by its apparent inability to find anyone who wants to run the business, is online.
Media buyers reckon that online advertising in the UK could increase by between £750m and £1bn next year from its expected £2.2bn in 2006. Though that is still less than half the amount likely to be spent on TV advertising, it represents continued rapid growth.
The woes of TV advertising were highlighted last week when SMG, owner of two Scottish ITV franchises, announced a dire profits warning that effectively put the company, which like ITV is also lacking a chief executive, on the block. SMG predicted a major drop-off in TV advertising revenues this year.
The onslaught yesterday prompted the industry regulator, Ofcom, to relax its code and allow the sponsorship of entire channels for the first time.
In the City, analysts reckon ITV's advertising revenues will be down more than 13% this year and a further 10% next year. The company has also all but lost its hold on the youth market with media agencies estimating less than a quarter of the 16-to-34-year-old audience will tune in this year, compared with nearly half at the turn of the decade.
"There is a big shift away from TV. I think more and more advertisers are seeing it as a cost and online is a big factor," explains one major ad buyer, who did not wish to be named as he is poised to enter negotiations with ITV over spending for next year.
"The money going online is not new money. What is going on in display and search advertising on the internet is money is coming out of traditional media, there is no question, and therefore a big chunk of that is coming out of TV, national press and cinema."
The reason ITV's problems are so significant is that until a few years ago its flagship channel - now ITV1 - was the holy of holies in the advertising market, because of the size of its audience. While debate still rages about whether viewers left ITV because they preferred other outlets - digital TV and the web - or they left because they saw nothing they wanted to watch, the fact remains that ITV no longer has that audience. Its failing has left advertisers adrift.
According to some media buyers ITV's well-publicised issues are causing a crisis of faith across the entire traditional media advertising world.
As well as problems with TV advertising revenues, last week's SMG warning included an acceptance that cinema advertising has dropped off. The company blamed a lack of major blockbusters but in a year that has seen Pirates of the Caribbean: Dead Man's Chest and The Da Vinci Code that argument holds little sway with advertising executives. Box office receipts this year are expected to be down about 2% on last year, which hardly explains the far more severe drop in revenues at Pearl and Dean, SMG's cinema advertising operation.
"Cinema is very interesting," one media buyer says. "The cinema market is again suffering from this switch of money into online markets.
"I just think cinema is going to have a tough tough time next year. It struggled this year and it is going to get worse. Most media go through a period of being the in thing, which is what cinema was a few years ago. There was more that people could do in terms of creative on a large screen and it was an alternative to TV. But now you don't need an alternative to TV because TV's so cheap."
The woes at ITV are affecting other parts of the market. Its own Carlton Screen Advertising may be suffering directly. Similarly there are concerns being raised about the poster advertising market. While it seems to be holding up well - SMG said its Primesight business is beating expectations - there is a worry about its long-term performance because TV revenues reflect the overall mood of the advertising economy. Also, as with cinema advertising, rises in the cost of advertising on TV have fed through to increased take-up of cheaper poster advertising. Cheaper TV ads mean less appetite for posters.
Compounding the negative effect of the recent flight from ITV by viewers is the fact that at exactly the time when the company desperately needed clear direction, it became rudderless. As one major advertising executive puts it, "the ITV board are being negligent" in the way they have handled the search for a replacement for Charles Allen.
Privately many media executives are scathing about the way that ITV's chairman and former Bank of Scotland boss Sir Peter Burt has gone about finding Allen's successor: appointing headhunters to draw up a long list then whittling that down to a shorter list of people to be interviewed by the board, who will finally be allowed to chose a new chief executive.
"Sir Peter is running this executive search process as if he was trying to find a new retail branch manager," according to one media executive. Media buyers, too, believe that the lengthy search is weakening ITV's position in the market.
"The lack of a chief executive has not had too much effect on the depth of the shit they are in, because the problems they have stem from the fact that their programme schedule has been terrible for the last three years," says one major British media buyer. "But in terms of the image of ITV not being able to find someone who wants to run the business creates a bad perception in client's minds.
"It is another negative when you talk to advertisers about ITV. It makes them think it must be in a mess because they can't even find someone to run it."
Whoever does get the hot seat will have to contend with forces that are already spiralling out of control. The broadcaster is poised to enter negotiations over next year's advertising spending. But contract rights renewal (CRR), which reduces advertisers' spending on ITV1 in line with a fall in ratings but without losing their discounts, means the next chief executive's hands are already tied.
"Because of CRR, there is little negotiation needed with ITV1," admits Stephen Allan, chief executive of WPP's GroupM, which accounts for about 30% of global media buying. "Agencies are able to take money away from them in line with their declining broadcast share. Of course some of this money is going back into the ITV multi channels and some of it is going back into the other broadcasters such as C4. And the rest of it is moving out of TV. So you could say that ITV's woes are helping other media - especially, of course, the internet."
The price of flops and deflections
Although many of ITV's woes stem from factors outside its control, such as an advertising malaise and the growth of multichannel competition, much of its plight is arguably self- inflicted.
The main problem is that its leading channel, ITV1, is not delivering the mass audience it attracted for 50 years with top-rated programmes such as Coronation Street, Blind Date and the Sweeney. Despite an autumn revival led by the talent show, the X Factor, and the continuing popularity of Ant and Dec, its audience share could fall below 20% for the first time this year as the channel pays the price for flops such as Love Island.
A series of tactical blunders over the past five years has contributed to today's ratings headache. The daytime schedule was damaged by the loss of the Australian soap Home and Away to Channel Five and by the defection of presenters such as Richard and Judy and Paul O'Grady. The infamous "News at When" fiasco allowed BBC1 to take on ITV1 in the crucial 9pm drama slot and to overtake it as Britain's most watched channel.
Innovation has been lacking, too. ITV1 still relies on venerable shows such as Coronation Street, Emmerdale and The Bill to deliver its highest ratings. The highlights of this autumn's drama season have been revivals of Cracker and Prime Suspect.
Despite its heritage as the country's top commercial broadcaster, ITV has allowed itself to be outflanked by its rivals in responding to the challenges of the multichannel era.
