Five reasons to invest in ITV
Despite fears of the internet killing off everything from newspapers to the music business, nobody pays any attention to online adverts, says Merryn Somerset Webb. The only place people take notice of ads is on the TV. And that’s why ITV is a good long-term hold.
In the course of the average day, I spend several hours on the internet. Before I started writing this, I read and answered tens of emails. I looked up car rental prices for the bank holiday weekend. I even double-checked the cheapest rates for offset mortgages (I am absolutely not planning to buy a house just looking).
But at no point did I knowingly click on, look at or even notice an online advert. I suspect I am not alone in this. Advertisers and content providers get terribly excited about the potential for internet advertising but, for most of us, it is never any more than an irritant and one that can now be easily removed with ad-blocking software something that makes it worse than useless as a sales tool.
So what advertising do I notice? TV advertising. When I'm watching Midsomer Murders, I can't block out the ads. And often I don't want to if I did, I'd never have seen that amazing Skoda car made out of cake, for example. Nor, for that matter, would I have looked at Skodas when we thought about buying a new car.
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Much has been made of the idea that the web will eventually kill off television. But it won't no more than TV killed off radio or radio killed off newspapers. Last year, the average Briton watched TV for 218 minutes a day a few minutes less than in the early 2000s, but two minutes more than in 2006. That hardly suggests TV is a dying medium. Note that the average internet user devotes just 24 minutes a day of his home time to the medium.
The response of the internet enthusiasts to the continuing popularity of television is often to point out that the young are less into TV than the rest of us. Last year, 16 to 24-year-olds watched only 150 minutes a day and also said they 'media-multitasked' while watching (they sent texts and fiddled on the internet at the same time).
But I can't really understand why advertisers are so obsessed by the "networked generation" anyway. It's not as if many of them have any money.
If they are teenagers, they will soon find their parents' newly straitened status trickling down to them. Average weekly pocket money has already fallen from £8.01 in 2007 to £6.13 in 2008, according to Halifax.
If they are new graduates, they are going to find that neither the job market nor the banks are in a terribly accommodating mood.
If they are in their 20s, they are probably already finding that credit card juggling isn't as simple as it used to be. And if they haven't the cash to buy stuff, who cares how much telly they watch?
Instead, advertisers should think more about the old. They watch piles of telly five hours each a day, if they are over 65, says Ofcom and, in the main, they've got more money than anyone else too. Think oodles of home equity, pensions that pay a living income, and a savings account or two.
If I had something to sell, I'd want to sell it to them. So I'd advertise in the serious magazines many of which have defied the internet and the recession to show rises in their circulation, and all of which have an older than average readership. And I'd advertise on the TV, during everything from quiz shows to Emmerdale.
This is why I think it might make sense to look at ITV. It has just announced horrible results with downgrades all around plus a halving of the dividend. The shares have fallen 50% this year already. It's the kind of performance we've come to associate with banks.
But here's the difference between ITV and a bank: with ITV you already know what bad news is coming it is predicting a 20% fall in net advertising revenue in September but with the banks, you haven't heard the half of it yet.
ITV has a few good things going for it, too. It makes the kind of entertainment and music shows both old and young like. It still has 23.5% of the UK viewing audience. It could even see advertisers return as they scale back online spend and seek refuge in a tried and tested medium in a recession.
ITV is also cutting costs, and a possible change in public service broadcasting requirements may help with this. And, although it seems there won't be a bid from Endemol, ITV is cheap and another bidder may appear in the future.
Finally, note that most analysts rate ITV as a hold or sell. Given the City's recent predictive record, that can only be a good thing for the shares. I don't think you'll make a killing on them, but they might be a good longish-term hold.
This article was first published in the Financial Times.
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