The Value of ITV

ITV's value - at MoneyWeek.com - the best of the international financial media

Television regulator Ofcom's decision to slash ITV's 2005 licence fee by nearly two-thirds to £80m is clearly good news. The savings from the fee come at a crucial time for the channel: Channel 4's airing of shows like Big Brother' are snatching an increasing number of viewers and ebbing consumer confidence has forced companies to cut back on marketing. These extra savings should amount to some £225m in net present value terms for ITV the equivalent of nearly 5% of the group's market capitalisation.

It seems that Ofcom is proving a "benign regulator", says Lex in the FT, having realised that access to the analogue system is decreasing in value as more viewers swap for the digital alternative. So much so, in fact, that by 2012, when the government plans to switch off all analogue TV signals, the licence fee will become a meagre £4m.

And there is scope for more good news for ITV: Ofcom may yet allow ITV to increase its advertising minutes so as to compete with that allocated on digital television. Moreover, a share buyback is becoming an increasing possibility, while bid speculation could boost shares even further.

But don't get too excited about the fee reduction, says Fiona Maharg-Bravo on Breakingviews.com. With audience share falling as more viewers turn to the digital option, advertising revenues are on the brink of a steep decline...much faster than the markets anticipate. This is but another "stark reminder" of the falling value of ITV's business.

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