British bottom line keeps stiff upper lip

UK ad market already down 4% from last year

LONDON When Britain’s best-known ad man, Martin Sorrell, visited ITV last month, he had one clear message for the battling broadcaster: Keep investing in content.

But as the economic downturn, sparked by the global credit crunch, threatens to become a full-blown recession in the U.K., keeping program budgets at existing levels may prove impossible.

For now, ITV insists its £850 million ($1.5 billion) annual spend on flagship web ITV1 is secure — despite a depressed advertising market that looks certain to lead to cuts in the spending limits of at least one British web before the end of the month.

Overall, Blighty’s TV advertising market is down 4% vs. last year — and forecasters expect 2009 to show a further 4% decline.

“ITV is outperforming an underperforming market,” says Mathew Horsman, co-owner of U.K. media strategy advisors Mediatique. “Its commercial impacts are up on the back of a strong schedule, and I expect ITV year-on-year to marginally outperform the market.”

If this sounds like clutching at straws in uncertain economic times, for all its woes, ITV1 is the only commercial British TV channel that can consistently deliver large mass audiences. As a result, despite the huge growth in online revenues, ITV remains a place where advertisers want to spend their money.

The situation for the U.K. broadcasting market is less encouraging for ITV’s two biggest rivals, pubcaster Channel 4 and Five.

Luke Johnson, chairman of Channel 4, reckons the British economy is in its worst state in 20 years.

In April, Channel 4 announced its first operating loss since 1992, after program costs grew faster than ad coin. Cuts to the web’s program budget are expected to be announced within weeks.

“The advertising recession is absolutely here now and we are all feeling the pinch,” the station’s director of television, Kevin Lygo, told producers in August. “We are going to have to cut our cloth accordingly this year and next. It is getting tougher, there is no question about it.”

Already, Channel 4, effectively owned by the British state, has shelved some of its more high-end fare, replacing it with repeats and cheaper factual shows in order to balance the books.

With ratings for the main network down from an 8.6% share a year ago to 6.3% now, it is not only economic factors that are affecting Channel 4’s perf.

Ad sales at the station are reckoned to have dipped by 8% this year. However, skeptics think the broadcaster may be deliberately exaggerating the extent of its financial plight because of its high-profile campaign for a public subsidy. Channel 4 topper Andy Duncan argues this is vital if the web is to survive as a pubcaster in an-all digital world.

Five, owned by Luxembourg-based RTL Group, has no such luxury and must sink or swim according to its own endeavors.

On Aug. 26, announcing results for the first six months of 2008, RTL’s CEO Gerhard Zeiler attempted to put a brave face on Five’s exposure to the challenging U.K. ad market.

During times of economic difficulty, it is the smaller stations that feel the pinch first as marketing departments re-allocate their funds. In this respect, Five is no exception; the station’s profits were wiped out in the first half of the year despite the arrival of the hit show “Neighbours,” poached from the BBC.

“Our bookings for July, August and September make it clear that we will outperform the market,” Zeiler maintained as he rejected speculation that Five is heading for the red.

As the R word — that’s R for recession — increasingly enters polite conversation, all U.K. broadcasters hope the RTL topper has firm grounds for such unusual optimism in what are, by common consent, tough times.