As Carolyn McCall, chief executive of easyJet and former Guardian boss, prepares to take up the mantle of running ITV, she does so at a time of sweeping change in the television industry, which has never been so complex.
Industry experts welcome her wealth of commercial and media experience in facing up to the imminent challenges ITV faces if it is to weather the storm closing in on the traditional broadcasters. Below are the four key challenges the commercial broadcaster faces, and what McCall can do to overcome them.
Data and technology
ITV is a 60-year-old traditional broadcaster that is an expert in creating hit TV content. Its shows continue to pull in top ratings – with Love Island pulling in highs of 2.2m viewers on ITV2, and Britain’s Got Talent gathering the biggest TV audience of the year by April. Meanwhile the rise of production arm ITV Studios, which recorded a 13% growth in revenues last year to £1.4bn, helped the broadcaster pull in over half (53%) of its total revenue from sources other than spot advertising in 2016.
But where its rivals in the online space are outgunning ITV is in using data and technology to be much smarter about how TV is targeted and made. Netflix uses its audience viewing habits to decide which shows to commission and which actors to cast, while both Netflix and Amazon Prime allow viewers to download shows onto their mobile phones to watch offline. This feature is only available to ITV Hub viewers who take out a premium subscription, Hub+.
Using technology and data to create a viewing experience that transcends linear broadcasts is only going to grow as consumers migrate to catch-up viewing on many devices, as well as recorded set top boxes, OTT and smart TVs. According to Zenith’s Online Video Forecasts 2017 published today (17 July), online video viewing will rise 20% in 2017, driven by a 35% increase in viewing on mobile devices, while viewing on fixed devices (desktop PCs, laptops and smart TVs) will rise by just 2%.
While McCall is clearly a skilled candidate having run a FTSE 100 company for seven years, and the Guardian Media Group before that, data and technology has not factored into her resume. But Jakob Nielsen, GroupM’s addressable TV lead, doesn’t see this as an issue as long as McCall surrounds herself with a team of digital experts.
“The chief executive needs to be able to have the scale to lift the company. They need to be able to set the direction and get the organisation to drive in that direction, getting everyone to work together, and be tough in changing the history-long internal ways of doing things,” he said.
“You don’t necessarily have to have a media person per se; if the person comes from outside they can come and lift the company if they are good at hiring smart people to work for them.”
What’s more, data and technology can play a significant role in helping the traditional TV players to continue to pique advertiser interest. ITV recorded a 3% drop in ad revenues in 2016 – the first annual fall in advertising revenue since the financial crash in 2009 – and saw its worst advertising performance in the run up to Christmas in almost a decade.
To parlay such declines, in May the broadcaster announced it will allow advertisers to target TV ads on a household-by-household basis within 12 months. The addressable technology was first launched by Sky in early 2014 and has proven a success in wooing smaller businesses to spend with TV that would otherwise spend their budgets with Facebook and Google – with 75% of AdSmart customers being either new to TV or new to Sky Media.
“That means in principle TV can grow,” said Nielsen. “It is not a doomsday but an exciting opportunity for TV to open up the world for non-traditional TV buyers. But you obviously need to be able to change your business model and attract the viewers who want content in different environments. If you don't do that, if you only want to run your business and focus on what you did the last 30 years, you will have a problem.”
McCall’s experience rising through the advertising sales ranks at Guardian Media Group to eventually become chief executive puts her in good stead to understand the commercial side of ITV’s business, which Gill Hind, chief operating officer of Enders Analysis, believes is “hugely important” given the downturn in TV advertising since mid-2016.
“The market is likely to be down at least 5% this year so it’s clearly beneficial that the new chief executive has significant advertising experience and can support her commercial team,” she said.
What’s more, McCall has run a listed company for several years and has a good track record at easyJet, with the share price trebling since she arrived.
“Her skills nicely complement the current chairman, Peter Bazalgette, with his background in TV production. ITV has a strong operational team in place, so overall a very good appointment,” Hind added.
The migration of viewers
While Nielsen believes that TV in the future will be “enormously exciting” in terms of how an advertiser can reach households, it will also be much more complex. Britain’s biggest broadcasters know they can’t compete on the financial scale of Netflix and Amazon.
The BBC, the UK’s biggest public service broadcaster (PSB), spent a total of £2.2bn on its TV division in 2016, while Channel 4 spent a total of £695m on content. ITV had a £1bn programme budget in 2016 and this is set to reduce by £25m this year as it will not have to pay the rights cost for a major sports event. Add those up and they don’t even come close to Netflix’s predicted $6bn spend on content this year, or Amazon’s $4.5bn video budget.
Other digital players have also been gunning for a piece of TV’s success, including Facebook, Snapchat, Apple, YouTube and Twitter, all of which have unveiled in some shape or form an online video offering that arguably rivals that of traditional linear TV. Apple now owns the rights to James Corden’s hit YouTube show Carpool Karaoke, Snapchat has been building ties with major TV networks in the US to produce short-form shows while Facebook has previously said it planned to launch two dozen original shows this year.
While Nielsen said the likes of Facebook, Snapchat, YouTube and Twitter cannot yet be defined as TV since they still have “an awful lot to learn” and they “don’t understand that you have to invest in quality content”, such companies move very fast when they commit to something, so it won’t long before they start emerging as serious contenders in the TV market.
Meanwhile, ITV has arguably been slow to adapt to the change in viewing habits from its consumers, always following in the footsteps of its rivals Channel 4 and BBC and their online streaming platforms, and has therefore seen viewers migrate into different properties away from ITV, argued Nielsen.
“Live linear TV is already changing and it will change in the next five years more than it has changed in the last 30 years,” said Nielsen. “That is one of the very big topics for the chief executive and it is only going to be more aggressive. We know that Google, Facebook, Amazon, Netflix etc, they are investing heavily in this space, and they are all sizeable players. ITV is up against players like that who want to take TV spend.”
But Greg Grimmer, chief operating officer of Dentsu agency Fetch, said ITV's place in the market should not be underestimated: "Despite many questioning the power of TV to draw in a younger audience, the recent success of shows such as Love Island highlight the cultural influence that both the medium and ITV still have. Original content should continue to be front of mind for ITV in order to maintain relevance to major advertisers and agencies."
Foster a culture of innovation and risk-taking
The biggest challenge facing McCall, Nielsen argues, is fostering a culture of innovation and risk-taking in order to shift the business model of ITV to better serve the three areas mentioned above.
Despite former chief executive Adam Crozier implementing a transformation plan at ITV that has seen the broadcaster shift emphasis from TV ad revenue to other revenue streams, including international production powerhouse ITV Studios, industry experts still take the view that the broadcaster is “not really seen as a big innovator” when it comes to business models, according to Nielsen.
“Whatever company you are you need to go out and take more risk. If you just carry on what you are doing I’m not sure you can change a company,” he said.
Risk-taking at a traditional media business steeped in a 60-year-old legacy is difficult, Nielsen admits, especially one that needs to convince the stock market that risk is a good idea. What’s more, in a big organisation like ITV, you “can’t just change things a little bit here and there”, but need to create a fundamental shift in the way the whole business operates, he advised.
“Otherwise they will not be quick enough, and they are up against some very big American players,” Nielsen concluded.
Paul Frampton, the chief executive UK & Ireland at Havas Media, who revealed to The Drum that he shares the same executive coach as McCall, believes she is a “superb leader” who focuses on building culture and customer experience through the power of brand – something that will be imperative to the continued success of ITV.
“She is also flying a much needed flag for female leadership within the FTSE 100 & the media owner landscape,” he added.
The sentiment was shared by Starcom chief executive Pippa Glucklich, who said she couldn't think of a better choice for the role. "With a pedigree such as hers across sales, media, management and business, she is perfectly placed to positively accelerate ITV in its next phase of growth and change," Glucklich added.