ITV has so far failed to find a strong online strategy to address the dramatic decline in value of its broadcasting business. The main commercial broadcaster in Britain wrote off £2.7 billion in the value of its assets last year. ITV has reported profits down by over 40%, although it still managed to make £167 million on a turnover of just over £2 billion. It continues to lose money online.

Michael Grade, the executive chairman of ITV plc, blamed the most challenging advertising market he had experienced in over thirty years in broadcasting. “Our priorities have to be aligned to the changed economic context,” he said.

ITV television advertising revenue is down 17% compared with a year ago. ITV is cutting costs, shedding staff, reducing programme budgets and selling assets.

The ITV Local online business is being closed and the company will dispose of its Friends Reunited and Scoot web operations. The ITV Local web sites had been a key element of the online strategy in a bid to attract local online advertising. ITV says an oversupply of banner advertising inventory has resulted in reduced rates. The company is also scaling back its regional news operations to concentrate on entertainment programming.

The online focus will now be on video. Michael Grade said “we are confident that by focusing on delivery of ITV content online we can become a market leader in long-form broadband video.”

The ITV.com web site attracts an average of 6.5 million users a month, reaching a peak of 9.4 million. Video views increased across the year as ITV relaunched its video services as ITV Player, delivering up to 16 million views a month, compared to up to 40 million for the BBC iPlayer.

Plans for the Kangaroo joint venture video service with the BBC and Channel 4 were blocked by the Competition Commission. ITV is now exploring other options, such as the Canvas project with the BBC to deliver video to television screens over broadband.

Online revenues were up just 10% on the previous year to £36 million, half of which was contributed by Friends Reunited. ITV bought that business for £120 million towards the end of 2005. Overall, ITV made a loss of £20 million in its online operations, compared to a loss of £12 million the previous year. With Friends Reunited up for sale, that leaves ITV.com with a lot to make up, although video advertising now contributes half of its online revenues.

ITV integrated the online business editorially with its broadcast channels late in 2008. However, the company seems to have reassessed its ambition to reach online revenues of £150 million by 2010. Instead it has recognised an “impairment charge” of over £300 million in its online business “as a result of the downturn in the short-term outlook for the advertising market and the reduction in demand for white-space advertising online”.

There is no doubt that the television advertising market is in recession, but online advertising has been less affected by the economic conditions and has continued to grow.

The failure so far to find an effective online strategy is a real concern for ITV as a legacy broadcasting business. The ITV share price has slid steadily down from over a pound two years ago to around a quarter of that value.

The problems that it faces are not simply cyclical, as a result of an economic downturn in advertising revenues. They are structural, as the regulated revenue streams from a virtual monopoly on television advertising have been steadily diluted by the growth of not only more channels but many more electronic entertainment options.

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