Media sector starts to recover in UK

14 September 2010

LONDON: Media companies in the UK are starting to see revenue levels rise, although sizeable challenges still await the industry.

Ernst & Young, the consultancy, found 70% of media owners listed on the all-share FTSE saw organic sales increase in the opening six months of 2010, compared with just 12% in H1 2009.

The average firm delivered a like-for-like expansion of 2.5%, measured against an 11.8% contraction the previous year.

Operating profits leapt by 34%, while margins reached 13.7%, an improvement on the level of 9.6% recorded over the same period a year ago.

Michael Rudberg, head of media and Entertainment at Ernst & Young, suggested that strict financial management had played a major role in achieving these increases.

"Cost cutting efforts and efficiency drives at UK media and entertainment companies created by the onset of the recession are proving to have been successful," he said.

However, organic totals for businesses claiming "considerable advertising and/or communications exposure" jumped 3.2%, a figure falling to 0.7% among rivals with a more limited presence.

"UK media companies have benefited from the upturn in the advertising market which gathered pace in the second quarter of this year and is continuing in Q3," said Luca Mastrodonato, media analyst at E&Y.

"The upturn has come as a surprise as many companies were not expecting a pick-up in advertising spend until at least 2011."

Less positively, newspaper publishers contributed three of the five corporations that witnessed a decrease in demand.

"Top-line declines were primarily driven by publishers' regional newspaper activities which rely heavily on classified advertising, a segment which has yet to recover from the downturn," said Mastrodonato.

Elsewhere, digital returns rose 5.5% in the first half, markedly bettering the drop of 9.9% experienced between January and June 2009.

"Digital revenues proved less resilient than hoped last year with both online classifieds and display advertising taking a hit," Mastrodonato continued.

"Online classifieds are still suffering from cyclical pressures and struggled to grow ... Publishers will be unable to grow their online revenues significantly until the recruitment and property markets pick up."

ITV, the UK's largest commercial broadcaster, reported an 18% uptick in ad sales during H1 2010, but chief executive Adam Crozier warned the outlook remained foreboding.

"This improvement does not disguise the underlying challenges we face ... Our objective is to build a lean business that creates world class content, executed across multiple platforms, which can be sold globally," he said.

"Over time, we expect to move to a position whereby around half of our revenue base is derived from non-television advertising sources."

Sir Martin Sorrell, ceo of WPP Group, the agency holding company, also recently argued the UK now represented a "division two" market, behind emerging nations like China and India, as well as the US.

Data sourced from Ernst & Young, ITV, Daily Telegraph; additional content by Warc staff