ITV and Sky

ITV and Sky announced this morning they had signed a new long-term partnership between the two companies. This now completes Sky’s deals with the commercial broadcasters with Sky having already signed deals with Channel 4 and STV. One thing to point out immediately is that the new agreement between Sky and ITV has taken longer than would have been expected. Part of that is probably due to Covid but there were other issues involved.?

The first thing to point out is that the most interesting part about the statement is what is not said. There is nothing about the length of the contract. More importantly, there is nothing in the statement over how much Sky has agreed to pay for ITV’s programming. Historically, this was a major sticking point. ITV had demanded in the days of ex-CEO Adam Crozier that Sky pay retransmission fees for ITV1 while Sky claimed it had no legal obligation at all. The attitude of ITV’s current CEO Carolyn McCall was slightly different. While still claiming that ITV should be paid for its content, her view was that she didn’t mind how a deal was structured as long as ITV was paid properly. Reading between the lines, it does feel as though an agreement has been reached. ITV talks states the deal “builds on the previous advertising and carriage agreement between the companies” and refers to it as “This new and enhanced agreement” which suggests that ITV is feeling satisfied with what it has achieved. It has probably been easier for Sky to agree to such a deal given it is now part of the much larger Comcast entity so it is far less likely to have to give any detail about the deal.

How much could ITV benefit from such a deal? It is hard to say. In my analyst days, I had suggested ITV could benefit by over ￡100m extra in revenues from a new deal but, given the pressures on Sky’s cost base, I don’t think Sky would pay that much. But even if it was ￡50m in revenues extra per year in ITV, the important point would be these are revenues that are effectively 100% margin so the impact on profitability is magnified. ITV made ￡560m adjusted Profit Before Tax in 2020 so ￡50m of extra retrains revenues would be equivalent to close to 10% of profits.

In terms of what is mentioned in the deal, there feels as though there has been a compromise stuck between the parties (this was where the other major sticking point was likely to have lain). On the one hand, ITV has committed to keeping its Planet V programmatic solution for advertisers with the added benefits of now having a much larger inventory pool. That would have been important given how much ITV has staked in pushing Planet V as a major part of its planned strategy. On the other hand, ITV has agreed to use the Sky-designed cflight as an TV audience measurement tool, joining Sky and Channel 4, and suggesting that the Broadcasters will go it alone when it comes to measurement instead of joining Project Origin;

Overall, though, it is likely this deal is a plus for both sides. It probably has gained ITV a significant boost to its existing retransmission revenues from Sky and, for Sky, it cements a relationship with ITV when it is facing secular pressures, as well as boosting (for both sides) their programmatic / technology platforms.??

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