I am always on the look-out for a bargain. I don’t mean looking for a new jacket at Debenhams though, or buy-one-get-one-free offers in the local supermarket. Where I look for bargains is the stock market.
One of my favourite investing-bargain opportunities is when a widely publicised news story about a company drives a share price lower, without necessarily being of fundamental concern to a company’s interests. Naturally then, the recent cancellation of the Jeremy Kyle show following the tragic death of one of its participants has me wondering if this is the case with ITV (LSE: ITV).
Now don’t get me wrong, the broader implications surrounding the responsibilities studios and producers have to those who participate in shows, are of grave concern. ITV should perhaps already have been more aware of this given the suspected suicides of two Love Island contestants earlier this year. But having said all that, is improving after-care or even changing some of its programming likely to have a prolonged and significant affect on costs, revenues and profits? I don’t really think so.
The ITV brand of course, has taken a hit. The company has been in existence for 63 years, and hosts some of the country’s favourite television programmes (and most profitable advertising space). But in reality those of us who think TV after-care should be improved, are not likely to boycott the station in protest – people want their fill of X Factor and Corrie after all.
So with all this in mind, am I going to buy some ITV shares a soon as I can get my hands on them? Well no, but not because of the Jeremy Kyle effect.
The way of the future
Firstly, and as much as I hate to say as a TV fan myself, broadcast television is a slowly dying industry. I personally find it hard to imagine a time when ITV and the BBC aren’t putting out regular programming that families sit down to watch on the tube, but I think for a child born today, that is a very realistic possibility.
The truth is that Netflix and Amazon Prime are making streaming services the way of the future. Even cable and satellite providers like Sky have on-demand download services that make scheduled programming almost obsolete. ITV itself has the ITV Hub, akin to BBC iPlayer, and is planning on launching a subscription based streaming service in combination with mega-rival the BBC later this year.
With this environment as a backdrop, ITV is not performing well. In its latest market update at the start of May, the company warned of tough times ahead, reporting a 4% drop in Q1 revenues and a 7% drop in advertising revenue year-on-year.
The one caveat I would say to this gloomy outlook is that major networks such as ITV are in a strong position to move into the streaming and download space, even if they are perhaps late to the party. With strong brand recognition, a history of creating new programming, and the practicalities of having studios, infrastructure and the right people ready to go, a well orchestrated pivot is highly possible.
If and when this does happen, I will be putting some money in – just not today.
Karl has no positions in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.