Worsening Ad Downturn Drives ITV, Pro7 To Retrench

Traditional broadcasters without government help have been forced to re-examine their business models.

Leading European free-to-air broadcasters ITV and ProSiebenSat.1 slashed dividends and costs on Wednesday to combat a severe advertising downturn of which neither would predict the end.

ITV, Britain's leading commercial broadcaster, said current advertising conditions were the worst in decades and dumped its mid-term targets, while ProSieben declined to give a 2009 forecast.

Unlike pay-TV rivals such as BSkyB, free-to-air broadcasters are almost entirely dependent on ad revenues, which are not only falling steeply but are spread increasingly thinly among a plethora of new digital and online channels.

Traditional broadcasters without government help have been forced to re-examine their business models and to expand into new digital outlets themselves, even at the cost of cannibalising their own revenues.

"Current conditions in the advertising market are the most challenging I have experienced in over 30 years of UK broadcasting," ITV's Executive Chairman, Michael Grade, said in a statement.

ITV on Wednesday abandoned its mid-term targets, wrote down its broadcasting and online assets by 2.7 billion pounds ($3.8 billion), suspended its dividend and said it would cut another 600 jobs on top of 1,000 already announced of a total of 5,500.

Germany's ProSieben slashed its dividend for preferred shares to 0.02 euros from 1.25 euros per share and initiated a new cost-cutting programme designed to save another 100 million euros this year. It has already announced 225 job cuts.

ProSieben, which is majority-owned by private equity firms KKR and Permira, is seeking to cut its net debt, which currently stands at five times core earnings, but said it saw no need for a capital increase.

ITV said it would evaluate all options to improve its balance sheet, and would not rule out a rights issue.

It put assets including its Friends Reunited Web site up for sale and said it was considering options for its digital multiplex business SDN.

AUDIENCE SHARE

Both ITV and ProSieben either held or improved their audience share last year, showing that their problems are largely rooted in fundamental industry changes rather than individual programming or scheduling issues.

ProSieben bought European rival SBS in 2007 for 3.3 billion euros to create a stronger rival to RTL Group but found that even such large-scale consolidation could not keep advertising revenues from slipping away.

ITV held its share of British television audience at around 23 percent and its share of national TV ad sales at about 44 percent. ProSieben improved its audience share in its core German-speaking markets slightly to 29.4 percent.

ProSieben has also been grappling with an unpopular new advertising sales model that harmed its revenues last year. The model has since been revised.

ITV expects a 17 percent drop in net advertising revenue in the first quarter of this year after a 4 percent fall in 2008. It expects to do better than the market in April, which it sees falling 20 percent, despite the Easter holiday.

ITV has the status of a public service broadcaster in Britain, which imposes obligations on it to supply a certain amount of children's, regional and religious programming in exchange for near-universal analogue reach.

The British government has been reviewing the future of public-service broadcasting in light of new digital realities. ITV is cutting regional news budgets and said on Wednesday it would retrench to focus on cheaper, entertainment content.

ProSieben suffered a 9 percent fall in sales in Germany, Austria and Switzerland last year, due to a decline in German ad revenues that steepened during the second half.

"Fiscal 2009 as a whole will be shaped by a very difficult economic environment," it said on Wednesday.