ITV Sale of Media & Entertainment Business Remains on Track

ITV's sale of its Media & Entertainment business to Sky remains on track despite a significant downturn in advertising revenue.

The UK broadcaster's CEO Carolyn McCall has confirmed that the deal is progressing as planned, with Comcast-owned Sky set to acquire ITV's channels and streamer ITVX for £1.6 billion ($2.1 billion).

This acquisition would leave ITV as a standalone global content group focused on its production arm, ITV Studios, which is behind popular shows like "The Gentlemen" and "Line of Duty.

The sale has been subject to regulatory review, with the UK Culture Secretary issuing a Public Interest Intervention Notice in November, paving the way for the Competition and Markets Authority and media regulator Ofcom to examine the takeover.

McCall described this development as an expected and important milestone, indicating that the process is moving at a steady pace.

In related news, ITV has had to scale back its content spending in the fourth quarter due to weaker demand from advertisers, cutting £25 million ($33.4 million) from its budget.

The UK advertising market continues to face challenges, with ITV citing economic uncertainty as a major factor in its declining ad revenue. The broadcaster has also pointed to the shift of ad money towards global streaming services and the implementation of new rules on healthy food advertising.

As a result of these factors, ITV's advertising revenue fell 1% over the nine months ending September 30, with an even steeper decline of 8% in the third quarter. Despite this drop, ITV remains optimistic about its prospects for the year, citing strong performance from its studios and digital revenue growth.

In a separate area of its business, Media & Entertainment revenue dipped by 1% to £1.43 billion, although digital revenue rose 7% to £461 million. This increase in digital revenue was not enough to offset the decline in linear advertising, however. ITV's streaming service, ITVX, has seen significant growth, with hours spent viewing its content increasing by 29% to 2.15 billion.

The success of ITVX has been driven in part by record-breaking viewing figures for several popular shows, including the final matches of the soccer World Cup and programming such as Trigger Point," "Big Brother" and "Love Island. Eight out of the top ten most-watched series among commercial broadcasters and streamers have aired on ITV.

Group revenue overall dropped 1% to £2.76 billion for the nine-month period, with a similar decline in ITV Studios revenue to £1.33 billion. However, sales from scripted and unscripted shows to ITV's own channels and streaming services rose by 4%, mitigating some of the losses from outside buyers who saw their purchases fall by 4%.

ITV Studios' nine-month performance has been in line with expectations, according to McCall, who noted that production deliveries and licensing deals are concentrated in the fourth quarter of this year.

The studio's content is performing well, particularly on UK screens, where five out of the top 10 most-watched dramas in the third quarter were produced by ITV Studios. These titles include The Gentlemen for Netflix, as well as shows for the BBC and ITV itself. Notably, The Blame has been the most-watched drama so far this year.

Despite a challenging advertising environment in the UK, ITV Studios is confident that its full-year revenue will outpace market growth. However, due to the revenue mix, the company's EBITA margin is expected to be at the lower end of a 13-15% range.

The studio has several high-profile titles set for delivery in the fourth quarter, including SuburraMaxima" for Netflix and "Line of Duty" Season 7 for the BBC. Additionally, licensing deals through the Global Partnerships unit are expected to contribute significantly to the company's total revenue.

ITV has made significant progress in its £100 million ($133 million) share buyback program, repurchasing a total of £81 million ($108 million) worth of stock so far.

The broadcaster's efforts to drive performance and mitigate the impact of the UK advertising slump continue unabated, with ITV's management remaining committed to self-help measures and strategic priorities.