At first glance, being removed from the prestigious FTSE 100 stock index may seem fairly superficial. It represents a lower market cap of course, but only in relation to another firm. It isn’t quite that simple, however. For me, this means even worse tidings for the ITV (LSE: ITV) share price.
My major concern regarding ITV’s removal from the FTSE 100 is that, as a result, it will be removed from a large number of funds. As investors, we think of fundamental factors and earnings reports as guiding our buying or selling. For institutional investors, however, this is usually not the case.
Some of the largest traders and holders of stocks are funds. They hold various stocks for different reasons, trying to mirror a certain market, for example, or guarantee returns. One of the most popular categories in the UK are FTSE 100 tracker funds.
Simply put, if a stock is not in the FTSE 100, it doesn’t need to be held by these institutions. Over the next few months, the stock will be sold and will no doubt put pressure on the ITV share price.
What’s more, it is not just tracker funds that require FTSE 100 status. Many other categories (blue chip, market cap over a certain amount, low risk, etc.) also only hold FTSE 100 stocks. Of course some of this will be made up by funds that look at FTSE 250 shares, but overall I suspect the support for ITV’s share price will be weakened.
The ITV share price already reflects a troubled market
What is even more concerning for me regarding the ITV share price is streaming. It is no secret that media-watching trends have been shifting to digital. Netflix and Amazon dominate the market. As viewers become ever younger and more tech-savvy, this trend was always going to continue.
It sounds dramatic to say terrestrial television is a dying industry, but it seems to me that this is the case. As with other sectors that are seeing a similar trends (such as grocery shopping), Covid and lockdown are likely driving these changes faster.
The convenience of on-demand streaming, usually with little in the way of advertising, is simply better than normal TV. In lockdown, the desire to watch even more television has turned many onto streaming that were not using it before.
The one area where ITV was still competing was in the area of its top-rated shows. Namely the X-Factor, Love Island and I’m a Celebrity. Lockdown and social distancing have caused both the X-Factor and Love Island to be cancelled this year. Their return in 2021 seems dubious at best.
In August, ITV reported the worst advertising decline in broadcasting history. I think its combined efforts with the BBC for BritBox are far too little, far too late. Coronavirus may be the catalyst that sparks the end of terrestrial television. For me, I only see risk to the downside for the ITV share price.
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Karl has no position 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.