Exclusive Interview: ITV’s Adam Crozier

August 30, 2012 World Screen Top Stories
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PREMIUM: Adam Crozier, the chief executive of ITV plc, tells World Screen about the success of the Transformation Plan, ITV Studios’ role in the British broadcaster’s turnaround and the outlook for the advertising market in the year ahead.

WS: Shortly after you became chief executive you presented your Transformation Plan for ITV. How far along is it today?
CROZIER: We started about two and a half years ago and we are about half way through. It’s deliberately a very simple strategy, which is that we want to create great content, make that content famous on our channels and other platforms, and then sell it around the world. Our strategy has four parts. First, it’s all about a lean, creative ITV, which is about the way we work internally to take advantage of being a producer/broadcaster. Second, we are trying to maximize revenue and share of viewing from our free-to-air channels. Third, we want to build new revenue streams in online and pay. And the fourth is to build a strong international content business. 

If we jump forward to today, ITV is in a much healthier state. All the different parts of ITV are working together. Two years ago we were producing 47 percent of our own programs, for ITV1 today it’s more than 55 percent. After ten years of decline in our share of viewing, over the last two or three years we stabilized, and in fact last year it went up slightly. We are outperforming the advertising market. We’ve got real positive growth in online and in pay—this year these revenues are up 24 percent. And lastly, we are building a stronger international content business and revenues are up this year 34 percent. The whole purpose is to rebalance ITV and we are making good progress—our non-advertising revenues are up by 26 percent and we are becoming less reliant on advertising.
 
Financially we are in a completely different position. Two years ago, we had a net debt of around ₤612 million ($961 million) and today we have ₤92 million ($144 million) of positive cash. We had a record profit last year of ₤462 million ($725 million), and our revenue and profit is up by 10 percent in the first half of this year. So we are well on the way to transforming the business, but we are very aware that there is still a long way to go.
 
WS: ITV1 is the flagship channel. What are the main strengths of its schedule?
CROZIER: ITV1 is right at the heart of our channel set up. It’s the biggest commercial channel in the U.K. Not surprisingly a few years ago when ITV wasn’t doing well, it had stopped investing in things like drama and documentaries and current affairs. What we have tried to do in the last two to three years is really return to what made ITV one of the iconic international broadcasters, which is to have a top-class schedule with a real variety of programs. We have gone very heavily back into drama, with series like Downton Abbey, Vera and Appropriate Adult; big entertainment shows like The X Factor, I’m a Celebrity…Get Me Out Of Here! and Britain’s Got Talent. We’ve got lots of top-class live sport like the Champions League in Europe and England football matches, fantastic long-running successful soaps—Coronation Street has been going for 50 years and Emmerdale, which celebrates its 40th anniversary this autumn—as well as high-quality factual, documentary and current-affairs programming. We have gone back to a full, high-quality schedule that covers all genres and is underpinned by a top-class news operation. So we’re back to focusing on what makes ITV’s schedule such an important part of the broadcast industry in the U.K.
 
WS: How do the ITV digital channels complement ITV1?
CROZIER: The great thing about ITV is that we lie at the heart of popular culture in the U.K and our digital channels are a very important part of that. Their viewing levels have consistently gone up over the last two years and were up 5 percent in the first half of 2012. ITV2 and ITV3 are the two biggest digital channels in the U.K with ITV4 growing very fast—up 8 percent in the first half of this year. As with all digital channels, we are looking to invest quite heavily in more channel-defining programming. ITV2 is aimed at the valuable younger audience, ITV3 is aimed at the ABC1 audience and ITV4 is primarily aimed at men through sport. What that does as a portfolio of channels, with ITV1 being for everybody, is allow us to pick off key audiences that advertisers demand. From a schedule-optimization point of view, that is the winning combination for us.
 
WS: Am I correct that there has been an increase in viewing across the board in the U.K.?
CROZIER: Yes, viewing in the U.K. has been at record levels. The average person is viewing just over four hours a day of linear TV, pretty much the highest it’s ever been. That doesn’t include the viewing on all the various new devices and platforms, so generally viewing of television is very strong in the U.K. right now.
 
WS: What’s driving this increase?
CROZIER: It’s a number of different things. First of all, there is a very healthy competitive market in the U.K., a lot of good channels. The U.K. invests per capita more in original content than just about any other market in the world, so there’s very high quality original programming across all the channels—drama and entertainment as well as sport. There was a view, a few years ago, that social media would detract from TV viewing, actually I think we are pretty clear that if anything, social media is driving interest in television and in television programming and in many ways creating a two-way relationship with viewers. The number one thing people want online is to be able to access programs at any time, on whatever device, in any place that suits them. But what they also want alongside that is increased engagement and interaction with the program.
 
WS: What is the outlook in the U.K. for the advertising market for the rest of the year?
CROZIER: January this year through to September it’s been broadly flat. The truth is, it’s been that way for 12 or 18 months now and within that we have been gaining market share. I don’t think it’s a surprise when you look at the economy in the U.K. The ad market broadly goes in line with that.
What is interesting from our point of view is that when you talk about a flat market, that could suggest that it’s quite boring, while in fact what you see is that within that there are huge shifts going on. For example, the finance category is 28 percent up year on year, and that is led in the main by Internet comparison sites, [which are] using television effectively as their shop window. Retail is down 9 percent and telecommunications is up 16 percent. So although the advertising market sounds flat and dull, actually it’s reflecting what’s going on in the economy and you only need to pick up a newspaper to see that there are winners and losers.
 
WS: How is ITV diversifying revenues?
CROZIER: We grew our non-advertising revenues by ₤93 million ($146 million) last year and by ₤106 million ($166 million) in the first half of this year, an increase of 26 percent mainly from content. But our online, pay and interactive revenues also did well in the first half of the year, up 24 percent to £46 million ($72 million) from pretty much a standing start. It’s becoming quite a significant number.
 
As I said, the most significant portion is generated from content. There is a genuine demand internationally for high quality content and it’s coming from two areas: from broadcasters all over the world looking to de-risk their schedules by buying proven content and from demand from all the various platforms, devices, and systems that are launching. People are beginning to realize that it doesn’t really matter how brilliant your technology is—if you don’t have something that people want to watch, you’re not going to do too well. It’s another area where the Internet is actually proving to be a real opportunity for us. Companies like Netflix, LOVEFiLM and all those connected-TV sites are all a real opportunity for us to sell content and content is, of course, at the heart of what we are doing. Key to that is investing very heavily in piloting and developing new programs, new scripts and new entertainment ideas. Last year we had 111 new commissions across the world and in the first half of this year we’ve had 61 new commissions with revenues up by 34 percent and, importantly, our international revenues were up 66 percent last year. We are producing more of our own programs, up from 47 percent to more than 65 percent.
 
We now have eight shows being produced across more than three countries while last year it was only four. The dramas we are producing, for example Titanic and Prime Suspect (and we’ve got a lot more in the pipeline including Mr Selfridge) are beginning to really travel internationally. So too are our new entertainment shows, including Surprise, Surprise which is coming back in the autumn to ITV1 and also looks like it’s going to be picked up in the States, which is terrific. We’ve got The Chase, which is being picked up in Germany, and hopefully in the States and we also have The Audience, which was sold to six countries. And of course Come Dine with Me continues to be the most-distributed format across Europe, which all goes to show that ITV Studios is really at the heart of the transformation of ITV.
 
WS: There were reports that ITV would be interested in acquiring Endemol.
CROZIER: You won’t be surprised to hear me say we would never comment on speculation and because ITV is quite a well-known name, we get associated with a lot! We’ve got great organic growth and we will look at opportunities when they come up.
 
WS: The ITV Player has been quite a success.
CROZIER: I have to be honest; it was one of the worst things we inherited. ITV had a really poor technology base and was typical of a company that was trying to create all its own technology and it wasn’t compatible with other platforms. In the beginning, we had to go back and re-write a lot of the codes and almost start from scratch and as a result it’s now a very strong proposition. We’ve also improved the distribution of ITV Player massively so that it’s now on pretty much all the major platforms. Our online viewing has gone up by more than five times in the last three years and 20 percent in the last six months. We are going to be augmenting that with a number of different things—a pay version of the player, so that we can start to bring in more revenues, and we also launched YouView, our connected-TV platform, with partners the BBC, Channel 4, Channel 5, BT, TalkTalk and Arqiva, which we see as the future version of Freeview. In trying to drive people to the site we’ve also made changes to our online news site, which has multiplied our viewing levels by four since we launched in the spring.
 
WS: Because of so much “wherever, whenever” viewing, some in the industry are questioning the relevance of linear channels, and wondering if on-demand viewing will overtake linear viewing. Is television still holding strong in the U.K.?
CROZIER: Television has been remarkably resilient and if anything has grown over the last few years and social media is driving that—ITV has something like 20 million Facebook likes. There is fantastic opportunity in the fact that people can now watch TV in places they could never watch before: sitting on a train or a bus, in the back of a car. People can get access to simultaneous schedules when they are watching on iPads or Android. And increasingly, we will be offering consumers the opportunity to access our archives as well, which opens up new revenue opportunities.
 
As I said before, the really big thing here is that television has a future where it doesn’t just reach mass audiences on linear TV, but also those watching on connected TVs. That represents a wonderful opportunity for us, but I don’t ever see it taking over from traditional television. If you get your programming right and you’ve got great, must-see programs, then linear TV will survive and prosper.
 
WS: These are difficult economic times in a number of countries and obviously the ad industry is feeling the impact. How is television in the U.K. holding up as an advertising medium?
CROZIER: Television has been remarkably resilient and there is no doubt that newspapers, radio and direct marketing have suffered disproportionately badly in the U.K. The two forms of advertising that have really held up have been television, which obviously reaches a mass audience, and the Internet. In many ways the combination of the two is increasingly a winning combination for advertisers and marketers in the U.K.
 
WS: Would you give some examples of how ITV is working with advertisers?
CROZIER: With our share of viewing and our share of the commercial marketplace, I do genuinely believe that we are the strongest marketing platform for advertisers in the U.K. What we have tried to do over the last couple of years is move to a different way of working with them so that we have become the strongest marketing partners. We’ve restructured our commercial team so that we can engage more directly with advertisers and media-buying agencies. All of them are trying to stand out in a quite crowded marketplace so we are working on creative solutions with them. We’ve had some very innovative partnerships with companies like Nationwide, Yeo Valley and Virgin Media. We’ve done an exclusive deal, for example, with Shazam for Shazam-enabled ads, which we launched in the Britain’s Got Talent finale this year. We are working on a number of new VOD formats that we will be bringing to the market. One is something we call Ad Explore, which will allow viewers, when they are watching advertising on our online ITV Player, to get deeper information about that company’s brand. So there are lots of different things we are doing and they are being very well received in the media buying and advertising marketplace.
 
WS: In the U.S. there is a lot of talk about whether the 30-second spot is still efficient. Is it still an efficient buy for advertisers in the U.K.?
CROZIER: There is no doubt that television in the U.K. is among the most, if not the most, cost-effective way of reaching your audience. So from that point of view, the 30-second spot is still an incredibly important part of campaigns here. The interesting thing about television for me is that people have used it as the medium to reach mass audiences, and increasingly the Internet for more targeted ones, and the more we move into connected TV the more television can also provide more targeted solutions alongside that mass awareness. I think that is a real opportunity for television stations not just in the U.K. but also right across the world. The connection between television and the Internet provides TV with a unique opportunity going forward to take a greater share of the marketing budget.
 
WS: The European Union only recently allowed for product placement in programs, but ITV has already had some successes with it.
CROZIER: Product placement is very well established in the U.S. and wasn’t in Europe for regulatory reasons. That was opened up and it became possible two years ago. I have to say it was opened up in a way that was still, from a regulatory point of view, very restrictive. And because of that it’s been very slow to get off the ground for all broadcasters and indeed for all content companies looking to do these kinds of deals. Therefore we haven’t seen that much activity.
 
Last year, we did a deal with Nestlé on This Morning, another with Nationwide, where a cash machine was placed on soap Coronation Street, and we also recently did a deal with Welcome to Yorkshire [which promotes tourism in the U.K.’s largest county] for Emmerdale, which is based in Yorkshire. We’ve had good, positive feedback from clients, but the problem is that the rules and regulations still make it very, very difficult.
 
Interestingly, a recent study suggested that viewers in the U.K. have begun to look at product placement more positively and see it as less of an issue than the regulators do. Of course, if there is an American show shown here, it has product placement all through it and no one bats an eyelid. So it’s a slightly odd rule, and I think there is every likelihood that [media regulator] Ofcom and the government will look at this again in the near future. In fairness, I think they are keen to help; they are slightly taken aback by how slow it’s been to get off the ground.