ITV will fare well in 2010, but 2011 looks tough

Ad revenues at ITV, the UK’s largest free-to-air commercial broadcaster , will grow strongly in  2010, but the broadcaster faces a challenging 2011, according to analysts. Morgan Stanley notes that the positive trajectory of advertising revenues seen thus far in 2010 will continue through the remainder of the year and it has raised growth projections from 7.9% to 10.3%.

However, the investment bank has lowered its forecasts for 2011. The bank said that next year will be tougher for the broadcaster because of a tougher UK consumer environment, the fact that the CRR mechanism that governs ITV’s ad rates and limits its ability to raise prices will remain in place and a weaker schedule with no World Cup soccer and limited X Factor. It expects 2011 ad revenues to be flat.

ITV focus on programming and rights ownership will also have a modest incremental cost impact. Morgan Stanley estimates costs at ITV’s programming and distribution arm, ITV Studios, will increase by £5m (€6m) this year and £16m in 2011.

Meanwhile, ITV could “comfortably fund” a £200-250m deal for smaller UK free-to-air broadcaster Five, according to Morgan Stanley. Five owner RTL is understood to have put it on the block and ITV is reportedly interested. “An acquisition of this sort can barely fail to enhance [ITV’s] earnings,” the investment bank noted.