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All eyes on the media sector as re-transmission deals hit the headlines
Thursday 10 Jan 2019 Author: Ian Conway

At the start of this week STV (STVG) and Sky announced a five-year deal giving Sky customers in Scotland access to STV’s programming in full HD for the first time. This has direct relevance to ITV (ITV), as we now explain.

STV shows will also be available on catch-up using STV Player on Sky Q and Sky+ set-top boxes and mobile streaming from the second half of this year. Programmes include flagship ITV1 shows such as Britain’s Got Talent, Coronation Street and I’m a Celebrity.

The news went down well with investors who sent STV shares up 8% on 7 January, giving the company a market value of £145m.

The STV-Sky agreement is a re-transmission deal in all but name. Sky and Virgin Media have insisted in the past that they won’t pay to re-transmit ITV1 so there is no direct reference to it in the STV announcement but it seems to be implicit from the programming.

ITV agreed a transmission deal with Virgin Media last year and is due to renegotiate its agreement with Sky this year.

On the basis of the deal with Virgin, analyst Ian Whittaker at broking firm Liberum estimates that a new Sky deal could bring ITV an additional £120m of revenue per year.

That may not seem much given 2017 turnover of £3.1bn but as with the Virgin deal there is no additional cost so the extra revenue translates directly into profit.

ITV’s pre-tax profit was £500m in 2017 with Liberum forecasting profit of £777m for 2018, then £858m for 2019 and £1bn for 2020 including the uplift from the Sky deal.

Despite the rise of pay-tv and streaming video services ITV’s family of channels still had the highest total share of viewing in 2017 with 22% of the market. It also led the television advertising market with a 48% share.

In its third quarter 2018 trading update in November ITV warned that overall advertising revenue was likely to be down 3-4% in the final quarter as Brexit uncertainty continued.

That would mean advertising revenue for the full year to December would be flat compared with a rise of 6% in the first nine months.

In the last fortnight ITV shares have been trading at 125p valuing the firm at just under 12 times 2018 forecast earnings and under 11 times 2019 forecast earnings.

Disclaimer: The author owns shares in ITV

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