ITV explores options for production studio as demand for content booms

ITV is actively reviewing the future of its production arm ITV Studios, including whether to sell a stake in the maker of Love Island and Bodyguard to help lift the broadcaster’s depressed share price.

The London-based company has recently fielded expressions of interest in ITV Studios in what remains a relatively buoyant market for production assets, according to people familiar with the discussions.

Even before the approaches, chief executive Carolyn McCall had been weighing options for the Studios business, which analysts and executives estimate may be worth more than the £2.5bn market capitalisation of its parent ITV, the UK’s biggest commercial broadcaster.

One person who had discussed a Studios sale with McCall said she was “totally fed up” with the stock market overlooking the business and was “open to doing something”.

An ITV insider said a sale probably remained unlikely because of longstanding resistance to breaking up the group’s integrated broadcaster-producer model, but added that the gap in valuations made the option “impossible to ignore”.

ITV Studios, which acts as a holding group for about 60 independent labels across 13 countries, is one of the largest producers of scripted and unscripted shows in Europe. ITV continues to look for acquisitions and has bought a controlling stake in Plimsoll Productions, the natural history programme maker behind A Year on Planet Earth, for £103.5mn in June.

Potential buyers include private equity groups and other large independent producers such as Bertelsmann’s Freemantle or FL Entertainment, the parent company of Banijay.

ITV said its board “continuously reviews opportunities to increase shareholder value, however we don’t comment on speculation”.

Ever since ITV embarked on an ambitious acquisition spree to build out its production arm more than a decade ago, the broadcaster has run periodic evaluations of a potential spin-off or sale.

The fall in ITV’s share price since 2015, which has wiped more than three-quarters of its market value, has revived the appeal of a transaction that might help reset market expectations of the broadcaster’s potential.

McCall acknowledged in July that she was looking for ways to bring ITV out of the shadow of its legacy broadcast business. “I really don’t think we’re recognised not only for the value of the Studios business, but actually for the strength and resilience, and actually how much cash the broadcast business throws off,” she said.

Studios’ operating margin of 13 per cent in the six months to June is significantly ahead of industry peers. Analysts at Citi this summer estimated Studios could be worth approximately £3bn, based on comparable valuations of production businesses.

Some analysts have argued that selling part of Studios would highlight the breadth of ITV’s assets — which spans traditional television, production and ad-supported streaming — and set a “benchmark” to raise the valuation of the whole group. ITV is launching its new streaming platform ITVX this autumn.

Studios reported revenues of £1.8bn last year and adjusted earnings before interest, tax and amortisation of £215mn, which is expected to rise to £246mn in 2022. Only about a third of its sales are commissioned by ITV and most of its revenue is now generated outside the UK.

While the steady stream of ITV commissions is one of the strengths of the production business, pricing could raise potential complications for any minority partner in future. ITV, meanwhile, may be reluctant to cede control of Studios in any joint venture.