ITV Forecasts 7 Percent Fourth-Quarter Ad Drop Amid Increased "Political and Economic Uncertainty"

Adam Crozier, CEO ITP

The U.K. TV giant sees 2016 ad revenue down 3 percent amid Brexit jitters, while ITV Studios will grow this year, followed by a roughly unchanged 2017, partly due to "increased investment in scripted content."

U.K. TV giant ITV, the British home of The X Factor, on Thursday reported a third-quarter advertising revenue decline of 4 percent, compared with a 8 percent gain in the year-ago quarter, which had been driven by the Rugby World Cup. 

"In recent weeks, the political and economic uncertainty has increased, and we are currently seeing more cautious behavior by advertisers," ITV said, predicting a sharp decline in the final quarter of the year.

On a call with analysts, management cited the debate and confusion over whether there will be a "hard" or "soft" Brexit as a factor that has made advertisers more cautious.

The company previously said that the U.K. advertising market has been affected this year by June's Brexit vote. ITV forecast ad revenue to be down around 7 percent in the fourth quarter and 3 percent for the full year, "with ITV outperforming the TV ad market."

Ad revenue was down 1 percent, compared with a 6 percent gain in the year-ago period, for the first nine months of the year. For the fourth quarter, ITV, led by CEO Adam Crozier, forecast a 7 percent ad drop.

Total external revenue at ITV rose 5 percent for the nine-month period. Broadcasting and online revenue rose 1 percent for the first nine months. The company's total non-advertising revenue increased 15 percent.

The ITV Studios content production arm continued to grow, ending the period up 18 percent, driven by acquisitions. ITV Studios' organic revenue, which excludes prior-year acquisitions as well as foreign-exchange movements, was down 9 percent for the first nine months of 2016. "There has been good growth in U.K. production with the decline driven predominantly by ITV America, which has been impacted by the lumpy nature of program deliveries," the company said.

Overall, ITV said 2016 earnings would be "broadly in line with prior year."

For the full year, ITV also said it was on track to deliver double-digit total revenue and profit growth at ITV Studios, primarily driven by acquisitions. "The strength of our pipeline of new and returning dramas will drive a return to good organic revenue growth in 2017," the company said. But it warned of a lack of earnings growth momentum in 2017, saying that "with increased investment in scripted content and the lumpiness caused by the timing of deliveries of some of our key shows, ITV Studios profits in 2017 are likely to be broadly in line" with 2016.

"We think it is the right thing to do," Crozier said on a call with analysts when asked about the increased investment in scripted content.

ITV has been expanding its ITV Studios unit to become less reliant on advertising revenue. In recent years it has acquired such U.S. companies as Gurney Productions, the company behind Duck Dynasty; Real Housewives of New Jersey producer Leftfield; Cake Boss maker High Noon Entertainment; Hatfields & McCoys producer Thinkfactory Media; Teen Wolf's DiGa Vision; Dutch The Voice creator Talpa Media; and U.K. producers Mammoth Screen and Twofour.

As is standard in the U.K., the TV giant provided its "trading update" after the end of the third quarter without detailing profit figures.

ITV recently said it would cut around 120 jobs as part of $32.8 million in cost reductions announced in July due to the "wider economic uncertainty" following the Brexit vote.