ITV Is Learning to Make Online Video Pay
At the mid-point of a five-year plan to transform its fortunes, U.K. commercial broadcaster ITV's strategy is meeting with some success.
In a broadly flat advertising market it posted non-advertising revenues of more than £1 billion (U.S. $1.5 billion), an increase of 12 percent year-on-year.
Its aim is to achieve 50 percent of revenues from non-advertising sources by 2015, growing online subscription services and production. Overall, the broadcaster increased revenues 3 percent to £2.19 billion (U.S. $3.3 billion) in 2012.
ITV attributes this in part to a 26 percent rise in revenues from online, pay, and interactive services, which generated £102 million (U.S. $154 million). That's still a drop in the ocean compared to ITV's broadcast advertising revenues, but it's making what chief executive Adam Crozier calls "a material, profitable, and rapidly growing part of ITV."
ITV sees an on-demand and pay strategy as essential to relieve dependence on the volatile ad market, and to keep pace with audiences that increasingly watch content on devices outside of the living room and outside of the schedule.
"Three years ago we weren't shy in saying that a lot of the technology wasn't fit for purpose [notably the £175 million purchase and failure to integrate social networking site Friends Reunited] and that we needed to get ourselves into the game," said Crozier. "We are now very well positioned for strong growth."
Crozier joined ITV in 2010 and set about investing £75 million (U.S. $113 million) to reboot ITV's online and pay strategy.
Crozier restructured the online division to include a "multidiscipline" sales team responsible for selling ITV's assets across broadcast and online; ITV.com was revamped; and, after considerable delay, ITV Player re-launched at the end of 2012 complete with transactional function.
"In micropayments we set ourselves a target of converting 100,000 registered users [of ITV Player] by Christmas. We achieved 354,000, and we now have over a million registered users," revealed Crozier.
"Payment only sits on PC and Mac, and although those are the largest driver of online video views, 95 percent of growth is coming from mobile which is why you will see us rollout payment mechanism on mobile platforms this year." Indeed, long-form video requests are up 22 percent, driven by mobile.
"It took us longer to get up and running than expected, and since this is our first foray into pay we played very safe," he added. "We haven't spent a lot of money promoting it until we were confident it was working well." ITV will likely make a bigger marketing push this year.
The total online and pay figure masks a number of different revenue streams, including licensing HD channels to Sky, interactive revenues (such as gaming), and distribution deals signed last year with aggregators Lovefilm and Netflix, alongside which micropayments must be considered an experiment.
"No-one can really be sure which monetisation model is going to be huge and which are not, so we need to play in as many we can," argues Fru Hazlitt, managing director of commercial and online. "We launched a pay function on ITV Player to establish a pay relationship directly with consumers, but we've also implemented distribution deals because we believe both models are viable."
The bigger portion of non-ad revenues for the broadcaster are sales of its productions from ITV Studios, such as "Downton Abbey" and "Selfridge," which grew 16 percent to £712 million (U.S. $1.1 billion).
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