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Edited Transcript of ITV.L earnings conference call or presentation 24-Jul-19 8:30am GMT

Half Year 2019 ITV PLC Earnings Presentation

London Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of ITV PLC earnings conference call or presentation Wednesday, July 24, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Kennedy

ITV plc - Group CFO, Director & Member of Management Board

* Carolyn J. McCall

ITV plc - Chief Executive, Director & Member of Management Board

* Kelly Williams

ITV plc - MD of Commercial & Member of Management Board

* Reemah Sakaan

ITV plc - Director of Network Marketing & Media Planning

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Conference Call Participants

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* Joseph Barnet-Lamb

Crédit Suisse AG, Research Division - Research Analyst

* Julien Roch

Barclays Bank PLC, Research Division - MD & European Media Analyst

* Laurence Davison

Deutsche Bank AG, Research Division - Research Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Patrick Thomas Wellington

Morgan Stanley, Research Division - MD and Head of the European Media Equity Research

* Richard Eary

UBS Investment Bank, Research Division - Executive Director and Head of European Media Team

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Presentation

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [1]

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Good morning, everyone. Thank you so much for joining us for ITV's 2019 Interim Results. In a moment, Chris will present our operational and financial performance for the first half of the year. I'm going to then take you through our strategic priorities, our progress, of course, in first half and our focus for the rest of the year. We will then have time for plenty of questions. And Chris and I are joined here today by some of our management team, who all of you should have met by now.

The quality of our content, as you know, is absolutely critical to our success, whether that's what we broadcast on our channels and platforms in the U.K. or what we sell internationally through our global Studios business. So in usual ITV style, and I can see you're already smiling, here is a video of the last 6 months and also what you can look forward to on ITV in the coming months in the U.K. and internationally.

(video playing)

So that showcase of content is why our viewing performance remained good in H1 against tough comparatives. Our online revenue grew strongly, up 18%, and ITV Studios has developed a solid pipeline of new and returning shows. We are, therefore, firmly on track to deliver our full year guidance: double-digit growth in online revenue; and at least 5% growth in ITV Studios, total revenues, at a margin of 14% to 16%.

We also continue to implement well on cost savings. Given the macro uncertainty, we are now targeting a further GBP 20 million of savings. We will deliver an additional GBP 5 million this year and GBP 15 million over 2020 to 2022. This brings our total target to GBP 55 million to GBP 60 million of cost savings, which is equivalent to around 13% of our addressable cost base. We will report today on progress in each area of our strategy as we continue to implement our investment plans. In the second half of the year, we will launch BritBox, having recently formalized our agreement with the BBC and received positive feedback from Ofcom. We will also deliver our new programmatic addressable advertising platform.

Our financial results, as you know, are slightly ahead of expectations with advertising in June better than we expected particularly driven by strong growth in VOD around Love Island. Total external revenues were down 7% driven by a 5% decline in total advertising and a 6% decline in total ITV Studios revenue because of the phasing of deliveries weighted to the second half, as we have previously guided. Year-on-year profits were also impacted by our essential investments, and we are seeing good progress from these, which I will talk you through shortly. Cash generation remains strong, and reflecting this and the Board's confidence in the business, we will pay an interim 2.6p dividend.

Now I'm going to hand over to Chris, who will go through our financial and operating performance over the first half.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [2]

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Thanks, Carolyn. Good morning, everybody. You've seen the financial headline, so now I'll take you through the results for the 6 months ended 30th of June 2019 in more detail, starting with Broadcast & Online.

As Carolyn has said, total advertising was down 5%, modestly ahead of the 6% we guided at Q1. Within this, the decline in spot revenues more than offset the strong growth in video on demand, which was up 18%. June performed more strongly than we had expected with total advertising revenue down 11% against a tough comparator of last year. TAR in June last year grew 22% off the back of the World Cup. In July 2018, it was up by 10% versus 2017. So if you compare this year to 2017, we're actually up 9% in June and expect July to be up 4%.

Now you'll hear both of us mention the World Cup a few times, so I wanted to give you some context as to why. While we can't be precise about its impact on viewing and revenue, we estimate that about half of the TAR decline in H1 is due to the World Cup. And ITV's total viewing is broadly flat on 2017. So clearly, it creates a tough comparative.

Direct to Consumer revenues were slightly down due to less pay-per-view boxing revenue, and our competition is being impacted by the absence of Saturday Night Takeaway. However, over the full year, we're on track to deliver revenue growth.

SDN revenue was down GBP 2 million driven by phasing of deal renewals in the period and other revenue was down 13% due to the closure of Encore at the end of April 2018 and lower commission from SDP -- STV, which corresponds with the decline in spot advertising revenue. In total, Broadcast & Online revenues were down 5%.

So moving on to costs. Our program spend is weighted to the second half driven by the Rugby World Cup in September. In the first half, we increased spend on drama as well as broadcasting 2 qualifiers for the Euros, which helped our viewing performance. Our guidance for the full year scheduled spend remains unchanged at about GBP 1.1 billion.

While we continue to manage costs tightly, our nonprogram costs were higher due to our essential investments in marketing, data, the Hub and Hub+, increases in property costs for our new land and buildings, as we've previously highlighted, and increased bandwidth and rights cost as a result of our significant growth online.

We've shown BritBox UK separately so that you can clearly see the net investment we're making. As the majority of the BritBox costs relate to content and marketing, they'll largely come through in the second half on launch.

In total broadcast, excluding BritBox, has delivered GBP 214 million of profit at 22% margin, which is down 17% year-on-year due to the decline in advertising, our essential investment, which have been partly offset by the cost saving program.

The operational highlights for the first half has been our viewing, both onscreen and online. Our objective is to deliver the audiences demanded by advertisers, both in terms of scale and targeted demographics. We continue to be the home of scaled mass audiences. And just as importantly, we are delivering a targeted demographic, which Carolyn will talk about later.

We've maintained our family share of viewing after 3 years of growth even against tough football World Cup comparators, and this strong performance comes across the schedule. Our daytime shows continue to grow their share of viewing from Good Morning Britain to The Chase. We successfully added a new range of dramas, including Manhunt, Cheat, Cleaning Up and The Bay, which were the 4 most-watched new dramas this year with audiences of over 7 million; and Rugby Six Nations and horseracing continue to drive key audiences.

The continuing dramas are down year-on-year following very strong storylines last year, but they continue to be the 2 largest soaps on TV. And it's this great content which has also driven our strong online viewing on the ITV Hub, which is up 13%. Most of this viewing is catch-up, but younger viewers particularly are also watching via simulcast, which is up 17%. And today, 81% of all 16- to 34-year-olds are now registered on the U.K. -- on the Hub.

We've got a strong schedule for the rest of the year with dramas including Sanditon and Sticks and Stones as well as I'm a Celebrity, the autumn series of Britain's Got Talent and X Factor and, of course, the Rugby World Cup.

Our viewing remains strong, but the advertising market continues to be tough. The shape of the second quarter has been very much as we expected with a strong April around Easter and a tough June against the Football World Cup last year. There's no question that the makeup of TV advertisers is changing as new categories and markets are being disrupted by insurgent brands.

Some categories are growing rapidly: publishers, airlines, airlines and travel and government are all spending more. The well-publicized issues with High Street retailers and FMCG companies have put their budgets under pressure, and they have reduced spend across all media. We're also seeing a decline in entertainment and leisure compared to the significant spend by the betting companies around the Football World Cup last year.

The key standout are the non-gaming online brands within each category, which grew their spend by 7%. These brands can see both the immediate impact of TV advertising as well as its ability to build brand. Carolyn will take you through how we're adapting our approach to advertisers and agencies to reflect these trends and the benefits that we're already seeing.

Now on to Studios. We're confident that we will deliver at least 5% revenue growth of 14% to 16% margin over the full year. But as we said in February, the phasing of deliveries is weighted to the second half. In the first half, total revenue was down 6% at GBP 658 million (sic, see press release -- "GBP 758 million"). Organic revenues were also down 6%, and total EBITA was GBP 116 million, down 2% at a 15% margin and firmly within our target range.

Looking at revenue in a little more detail, the U.K. was 1% in total up with sales to ITV up 7%, including shows such as The Bay, Wild Bill and A Confession. Our off-ITV revenues in the U.K. were down with growth of deliveries from Gold Digger and Shetland offset by the absence of last year's Bodyguard and Age Before Beauty.

As expected, ITV America revenues were down significantly, 47% year-on-year at constant currency. That's driven entirely by the absence of The Four. In the second half, ITV America will deliver growth year-on-year with a strong delivery slate, including the return of Hell's Kitchen, Love Island US, Snowpiercer and Cowboy Bebop. So for the full year, we're expecting ITV America revenues to be broadly flat with profits up following the reorganization and consolidation of the U.S. business.

ITV Studios Rest of the World delivered 5% revenue growth, 6% growth at constant currency. We're getting better at monetizing our formats across our global network, and we're growing our European drama capabilities. We agreed a number of multiyear deals for The Voice as well as production of our other formats across key territories, including I'm a Celebrity and Saturday Night Takeaway in Australia and Dancing on Ice in Germany.

Global Entertainment revenues were broadly flat with the timing of some big deliveries weighted to H2. In line with our strategy, scripted has strongly grown in the first half. And with demand from OTT platforms, it's likely to be an area of higher growth in the medium term.

Now the Studios business does not fit neatly into quarterly reporting, but we do have good visibility of our revenue for the year, and our secured pipeline for this year is GBP 130 million more than it was last year, which underpins our confidence in the full year outlook.

In July last year, we announced GBP 40 million of essential investments for 2019 in technology, data, digital hub and Hub+ to ensure that ITV has a strong and sustainable future and to drive our digital transformation. The program is on track, and Carolyn will take you through the detail of how we are allocating the investment and the progress we're making.

The investments we're making will be partly offset by cost savings. The original cost program is on track, and today we've announced that we will deliver an additional GBP 5 million this year and a further GBP 15 million over 2020 to 2022.

To give you a sense of the ambition of this target, I thought it'd be helpful to break down our cost base, the principal components and network program budget, transmission and industry costs and at ITV Studios, the actual costs of making productions, which are only partly addressable. Only 15% of our cost base is fully addressable. Now once we'll go for efficiencies in all areas, for context that GBP 55 million to GBP 60 million of cost saving is equivalent to about 13% of our fully addressable cost base. In the first half, we delivered GBP 10 million of savings, so we're well on track to deliver the GBP 20 million this year. The savings are coming from organizational redesign, production efficiencies, contract renewals, overheads and U.S. property moves.

In total, we generated GBP 248 million of adjusted earnings, down 13%, and 6.2p of adjusted EPS, also down 13%. First half adjusted financing costs have increased by GBP 5 million as a result of our slightly higher debt levels, some foreign exchange and the introduction of IFRS 16. Whilst IFRS 16 has no net impact on the profit before tax, it increases our EBITA and our interest charge by GBP 2 million in the half, and it increases our gross liabilities at 30th of June 2019 by GBP 113 million with net assets remaining largely unchanged.

The tax rate has come down to 18%, which we expect to maintain over the full year. And over the medium term, we now expect the rate to be between 17% and 18%. Statutory EPS is 4.8p, which is down 9%.

Exceptional costs primarily comprise acquisition-related earn-outs and the one-off costs of delivering our cost-saving program. We've got a solid balance sheet, and our cash generation continues to be strong with profit to cash conversion at 89% despite our continued investments in the scripted business.

We continue to manage the balance sheet in a way that's consistent with our commitment to investment-grade metrics. And our net debt at 30th of June 2019 was GBP 1.1 billion with net debt-to-adjusted EBITA of 1.3x and adjusted net debt-to-adjusted EBITA, which better reflects how credit agencies look at us, of 1.9x. We've got good access to liquidity with GBP 740 million of undrawn facilities.

And finally, our pension schemes are reporting a deficit of GBP 113 million, which is up from the full year. There's an increase in liabilities as a result of lower discount rates, which is partly offset by asset growth and our funding contributions in the half. So overall, the balance sheet is in good shape. We've got the flexibility to continue to invest in the business and deliver returns to shareholders. We maintain our commitment to a dividend of at least 8p per share this year, and it remains our intention to grow dividends broadly in line with earnings over the medium term.

Finally, I just wanted to touch on planning assumptions for the full year. The majority haven't changed, but, as I've said, cost savings target has increased by GBP 5 million to GBP 20 million, adjusted financing costs will increase from GBP 35 million to GBP 40 million, the tax rate has reduced from 19% to 18% and the CapEx guidance has increased from GBP 65 million to GBP 80 million to GBP 85 million as a result of our investment in addressable advertising platform.

I'll now hand you back to Carolyn.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [3]

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Thanks, Chris. So as you all know, we launched a new strategy a year ago in response to the changes we're seeing within the media market. There's no doubt that the pace of change is rapid and our strategy will continue to evolve. We've now created a much stronger foundation: our IPB model with world-class content, deeper advertiser and customer relationships, a brand that resonates more with light viewers and sufficient financial flexibility to invest and grow.

Our priorities are clear and we'll ensure that ITV is the preeminent platform for viewers and brands in the U.K. by accelerating our digital transformation, a leading Direct to Consumer business in the U.K. and a world-class creative force in global content production.

So there continues to be a lot of commentary about changes in viewer and advertiser behavior. So we thought it was important to remind you why TV remains such a powerful advertising medium and more particularly ITV. Viewers in the U.K. watch 192 minutes per day of broadcast TV set viewing. This is down 5% on the previous year. If you include all viewing across broadcast and SVOD and all devices, 70% of viewing is still live broadcast TV despite the proliferation of choice.

We have seen TV advertising decline with continued economic and political uncertainty, but TV advertising remains critical to marketing campaigns. 86% of all video advertising is on live linear TV. There are 2 key reasons for this. Number one, TV generates the highest ROI of all advertising; and secondly, TV also provides a safe, trusted and transparent environment, the ads are seen in context. Research has shown that TV delivers the highest profit return on investment of any advertising, around GBP 4 profit for every GBP 1 spent versus GBP 2 for online video and less than GBP 1 for online display.

TV, and specifically ITV, remains the only place to get immediate reach and scale. Advertisers value ITV as the home of mass quality commercial audiences with, as you saw, 99% of all audiences, over 5 million. We've maintained our share of viewing, now at an 11-year high and an all-time high, very strong given the tough comps with the World Cup last year.

16 to 34s are clearly watching differently. But if you deliver them content they want, they will watch it. Love Island, which delivered the largest 16-to-34 audience so far this year across all channels, is not the only example of this. There are many more, including Britain's Got Talent, Dancing on Ice and even Coronation Street, which means the ITV Family is the largest family of channels for 16 to 34s. We also deliver the other key demographics which advertisers require. ABC1 SOV on ITV3 is up 7%. Men on ITV4 was down 1% due to the absence of the Football World Cup; and of course, we have the Rugby World Cup in the second half of the year.

So ITV's position overall is strong. There is increasing competition for eyeballs and advertisers. We know that economic uncertainty has caused advertising to decline, and clearly there's a great deal of change in viewing and advertising trends. We keep this under constant review, as you would expect, and are much more able now to adapt what we do in an agile way. Our strategy is designed to address the challenges and the opportunities that all of this presents. That is why we're investing in the ITV Hub and our programmatic addressable advertising capabilities to enable us to deliver highly targeted advertising around premium VOD as well as mass simultaneous audiences.

So a very quick reminder of our strategy, you're familiar with this: strengthening the integrated producer/broadcaster with a clear digital plan to ensure we continue to engage with viewers and advertisers in the most relevant way for them and at scale; growing U.K. and global production; and creating a scaled Direct to Consumer business. The unique integrated business model with a strong linkage between the 2 core businesses is a real competitive advantage; it provide Studios with a bedrock of core commissions and a formidable promotional engine for its content; it enables 360-degree monetization of Studios' content by ITV; and it secures access for great content for ITV's channels, AVOD and SVOD businesses; and it protects them against above-inflation content pricing pressure.

So let's look first at the IPB. Our plans for the IPB have 5 key components, which you can see here, focused on strengthening the IPB model to drive digital viewing and advertising with our investments in the brand, in the Hub, in technology, in data and in addressable advertising. I'm going to now briefly talk through our progress against each of these and then give you our priorities for the rest of the year.

We have clear measures of success, which are set out on this slide. We are largely on track to deliver our medium-term targets. ITV total viewing, as you know, was down in the first half, but this is against the World Cup. If you look through 2 years, as Chris said, total viewing over the half was broadly flat. Brand consideration, also impacted by no Football World Cup, was down in H1, but consideration for light viewers over the first 5 months was up, and light viewers are the key target for us.

The first part of our IPB strategy and investment is to reposition ITV as a brand, drive more light viewers and increase reach. In January, we evolved the brand to be more creative and contemporary, which is now visible on ITV and on the ITV Hub. We launched our new More than TV viewer campaign only in January this year and developed consistent off-air marketing across multiple media channels. And although very early, we're seeing a very positive response. Spontaneous consideration of ITV Family amongst light viewers is up 2 percentage points, and we have successfully launched a range of shows, including The Bay, Manhunt, Cheat and Cleaning Up, which have all delivered higher-than-average light viewer audiences. We will, of course, continue to target light viewers with off-air marketing later this year around our autumn drama launches and, of course, the Rugby World Cup. With the strengthening of our data capabilities, we are also using ITV's first-party data to target digital marketing more effectively.

The second component of our IPB investment to drive digital delivery is ITV Hub. In the first half, we've improved the user experience with cross-platform resume, trial recommendations on iOS, enhanced boxset experience and delivered fuller access services. We've rebuilt the Hub on the Now TV app and launched the ITV Hub app on Virgin. And we've seen very strong growth in our online metrics as a result of all of this: viewing up 13% with dwell time up 5%; registered users up 17%; and MAUs, monthly active users, up 37%, which is flattered by compulsory registration on the ITV Hub on connected TV. Later this year, you will see us roll out a newly designed ITV Hub with new user-focused features to drive greater personalization, even higher engagement and the up-sell of BritBox.

Our third area of investment in the IPB is our tech capabilities and platforms as we accelerate our digital transformation internally and externally. We are evolving and enhancing our digital video platform to deliver the Hub redesign and the launch of BritBox. We're building our new programmatic addressable advertising platform. We're using technology to automate operational processes to increase efficiency and productivity. And in the first half, we have already delivered the iterative improvements to the Hub user experience. BritBox is currently in alpha testing. We've delivered a new airtime sales platform and we've also delivered a royalty payment platform. And our priorities for H2 are obviously the launch of BritBox, the operational launch of our programmatic advertising platform and all the new developments on the Hub.

On to data, where our investment is focused on how we can use data to generate value and revenue in 3 key areas: viewing, consumer revenue and advertising revenue, meeting advertiser demands for highly targeted advertising in addition to what they might do on mass reach. In the first half of the year, we've built the data and insights team from scratch, we didn't have one before, and significantly strengthened our data skills and capabilities. We have also invested in scaling our own platform, ensuring that the data is robust and compliant while laying the foundations to enable unification of all our data sets around ITV in the future. This will give us a more complete and actionable understanding of our viewers and customers whilst driving operational efficiencies.

Now on the objective of driving viewing, we're trialing our own content recommendation algorithm; and on consumer revenue, the focus has been putting in place a comprehensive data framework for BritBox in particular. We're establishing our future capability around advanced advertising, prototyping and developing multiple data science-led advertising products. So the priorities for H2 are also clear: implementing the content recommendation algorithm and rolling out the data framework across the business.

On to advertising specifically. We're investing around the 3 key priorities we have here: creating, where we've created now the new client strategy team to enable us to build those longer, deeper relationships with our advertisers; strengthening our creative partnerships to provide original integrated and engaging marketing campaigns, which we've already done, but we've augmented; creating a scaled programmatic advertising platform around our premium VOD inventory. And of course, in all 3, we are making good progress.

By working more directly with advertisers, we have brought many new digitally native brands into TV advertising for the first time, and these are shown on this chart, and there are many of them, brands who can see the immediate benefits of their advertising spend and demonstrate how valuable TV is to build that. We're also working at a deeper level with established advertisers. And where we have those deeper partnerships, we see an increase in their airtime spend. So for example, Reckitt Benckiser sponsors TOWIE with Veet and the pollen report with Optrex, and their spot advertising spend has grown. McDonald's has sponsored movies on our digital channel, and their airtime spend has also grown. The Camelot Saturday night partnership with the draw announcement continues very successfully into 2019.

We're also increasingly creating innovative advertising solutions through our partnerships team. Two great examples of this are: firstly, M&S with Britain's Got Talent, a fully integrated deal including sponsorship, product placement, BGT aisles in their stores, a bespoke spot ad made by ITV and social media content also generated a lot by ITV. This has worked so well for M&S that they're also sponsoring the BGT autumn series. And here is a quote from Sharry Cramond, who's their CMO. She talks about a genuine partnership. "They take time to understand our business strategy and create world-class creative solutions." And that is why they've come back in because we have shown them boundless creativity. So well done to Kelly's team because we are seeing more and more of those partnerships.

Second, on Love Island. We have 9 commercial partners this year. We have merchandising and licensing as well as the Love Island story game and the launch of the Ministry of Sound album. This has driven GBP 8 million of incremental revenue year-on-year for ITV, and it has been a great success for our partners. I'm just going to give you 2 examples because there's not enough time to do 9. I Saw It First, which is a clothing brand, have seen their sales increased by 67% and 0.25 million new customers shopping on their site since the first episode. As you can see from this quote from VOXI, which is a Vodafone brand but aimed squarely at younger consumers, it shows how TV can be so powerful for them. And this is a quote from Lisa Walker. And I think the things to pull out here is "Love Island has been instrumental in driving growth," which you would expect. "The power of the show has helped us realize as a business that TV is still a key channel for youth-orientated brands."

The Love Island Instagram account has 2.9 million Instagram followers, making it, we think, the most followed Instagram account for a reality show in the world, bigger than Keeping Up with the Kardashians. Amazing. And you'll have seen this morning that next year, there will be 2 series of Love Island, so you won't have to wait a whole year for the next series. We're making good progress, as I think you have gathered, on programmatic advertising, too, around our premium VOD inventory.

You will all remember that we signed our perpetual U.K. license for the Amobee technology in April. We're now integrating the technology and investing in the skills and capabilities we need. We're currently live with one agency on the existing programmatic platform. In Q4, we will begin to roll that out to agencies of the demand-side platform, the DSP, in our new programmatic buying platform. Our aim is for all major agencies to be live in H1 next year.

Now this will enable advertisers from their own terminals to buy ITV Hub inventory seamlessly and cost efficiently and effectively, build their own audiences, add their own data and monitor their own campaign. During the first half of next year, we'll be integrating new supply-side capabilities and a data management platform within ITV to ensure that by H2 2020, we will have a fully programmatic, integrated and automated buy- and supply-side platform. In the future, we also believe this will be an opportunity for SMEs.

Now we know that our clients are telling us that they see this as the best of both worlds, a combination of the mass simultaneous reach that can only be delivered by our linear channels, it's the only medium that can do that, and highly targeted addressable advertising at scale around premium inventory on the ITV Hub. It doesn't exist anywhere else in the market, and it will provide greater value and opportunities for advertisers on ITV.

Our second big strategic focus is Studios. As you know, our aim here is to be a leading creative force in global content, driving our scripted and unscripted businesses. It is now a scaled business, one of the largest producers in Europe and one of the largest independent unscripted businesses in the world. We have good momentum in the business, and our plan for organic growth requires modest investment over the next 3 years and is focused on drama and entertainment development funds to build our creative pipeline, strengthening our creative talent and building our monetization capabilities. Demand for great content has never been stronger both from consumers and, therefore, from platforms. This is a great, great opportunity for ITV. Our revenues and hours were down in the first half due to the phasing of deliveries being weighted to H2, as Chris explained. We're well on track to deliver our medium-term targets.

So some of the highlights from the first half. We have strengthened our creative talent with Patrick Spence, the award-winning producer behind programs such as Fortitude and Silent Witness, joining us from Endemol. We've increased our minority stake to take a controlling interest in Monumental, creator of Harlots. Our scripted revenues are up 22%, and we have sold 34 formats with 10 sold to 3 or more countries. 54% of our revenue is from outside the U.K., and we are selling more to OTT platforms with original hours commissioned up over 200%.

ITV America is one of the top unscripted content providers to streaming services with real success with Queer Eye, Girls Incarcerated. They have many other projects in development with Disney+, Facebook, Quibi, Apple, AT&T, Warner and Snapchat.

A little bit more detail on some of these things. We've seen very strong growth in scripted in the first half, particularly in the U.K. We're seeing increasing demand from platforms internationally for original, long-form and secondary rights. We have a fantastic delivery schedule for H2 in the U.K. and internationally, and that includes Snowpiercer, which has already been commissioned for a second series by TNT before the first one has aired.

Our European scripted business continues to perform well with strong demand from broadcasters and OTT platforms for local content with global appeal. In the second half of the year, we will deliver Profilage and Balthazar for TF1 in France; Zero Zero Zero on Sky, Canal+ and Amazon; and Summertime and Carlo & Malik in Italy.

A key strength of Studios is its large portfolio of successful formats that return and travel, and we are strengthening that every year. As part of the entertainment development fund, we have a number of pilot commissions in the U.K. to trial new formats. And while we continue to sell the right to produce formats in multiple countries, we are also increasingly producing our formats for international markets, locally in those markets, capturing the full margin. We've recently set up ITV Netherlands, for example, to enable us to sell and produce ITV formats locally.

So as we look to the remainder of the year and beyond, we are clear on our priorities for Studios, which are attracting and retaining great creative talent, maximizing the value of our formats and IP internationally and growing our scripted business.

Our third major area of future growth, as you all know, is about the consumer, and we have an -- as you -- we keep saying we have now created a Direct to Consumer business. There's been good progress here with strong growth in Hub+, which has very high margins. We remain on track to deliver our medium-term targets and over the full year expect to deliver revenue growth. We have successfully rebranded the competition portal to ITV Win. We are strengthening our customer focus through investing in the right capabilities and skills. Our existing propositions in the D2C market, ITV Hub+, BritBox in the U.S. and Canada are performing very well. As I said, Hub+ subscribers have almost doubled since 2018 to over 500,000 subscribers. BritBox US and Canada has reached over 650,000 subscribers.

So we continue to research and track the SVOD market, as you would expect. It is showing no sign of slowing down. There is a real appetite amongst British viewers for a new British streaming service in addition to their current subscriptions. Our data shows that more households are taking multiple subscriptions. While the annual growth of homes with any SVOD service is 20%, the growth in homes with multiple services is 34% with 5 million homes now having more than 1 subscription.

BritBox will tap into this demand and will provide the largest collection of British box sets available anywhere: the best of the past, the present and with original commissions for the future. Our research has shown that the desire for British content is high, as I said, with 44% of all online homes interested in subscribing to a new SVOD service which features British content. This increases to 54% in homes with Netflix, showing there will be complementary services. BritBox is on track to launch in Q4. Our team is working round the clock to launch the service. We have now signed an agreement, as you all know, with the BBC, and beta testing will start very shortly.

We also anticipate that BritBox will make its first original commission in Q3, which will be available to view on BritBox in 2020. It will be competitively priced at GBP 5.99 per month, which is less than other streaming services. Both ITV and the BBC will support the launch of BritBox with a high-profile marketing and promotional campaign and will also look at how best to connect viewers between BritBox, ITV Hub, iPlayer as they search for the content they wish to view. And with ITV and the BBC's commitment to BritBox, we will be building a very distinctive library of content as existing license agreements with other players expire.

BritBox will be an ITV-controlled entity with an initial holding of 90% and the BBC holding 10% of the equity with an option to increase that to 25%. We anticipate that other partners will be added to BritBox, and we are continuing to speak to regulators and the wider industry about our proposals. Our expected net investment in BritBox UK remains unchanged. It will be up to GBP 25 million in 2019 and around GBP 40 million in 2020.

You will no doubt have a lot of questions about the key drivers, and these are content and customer acquisition. And we will give you more details post launch. Our objective is to create long-term value, and we will do this by being disciplined while taking advantage of the opportunity to grow this service quickly.

So you can see that we're making good progress in digitally evolving the business, improving the platform and the user experience at the Hub and Hub+, the launch of BritBox, building our programmatic addressable advertising platform, common editing platforms in Studios and creating a data and insight center of excellence with new data, skills and capabilities.

So to the outlook. In summary, we're very, very clear on what we need to do. We remain very focused on delivering our strategy and managing our costs tightly. Our strategy is focused on our digital transformation to create a stronger, more diversified and structurally sound business. ITV is an enduring cornerstone of entertainment for viewers and advertisers, and the next phase of our strategy will further position ITV to take advantage of evolving viewing and advertising opportunities as we become an increasingly digital entertainment company.

Economic and political uncertainty continues to affect the demand for advertising, as we expected, with total ad forecast to be between minus 1% and plus 1% in Q3. We remain on track to deliver our full year guidance: double-digit growth in online revenues and at least 5% growth in total ITV Studios revenues with a margin of 14% to 16%.

We have a solid balance sheet, which enables us to make the right decisions to build a future-facing and robust business and deliver returns to shareholders with a commitment of at least 8p dividend per share for the full year.

Thanks very much for listening, and we're now happy to take your questions.

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Questions and Answers

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Unidentified Company Representative [1]

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Why don't you (inaudible)? Two there.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [2]

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It's Laurie here from Deutsche. The first question is with the BBC iPlayer now able to offer 30-day catch up, have you downgraded your expectations for BritBox revenues and/or subscribers? Second question. This year should be really good for Studios. You've got Hell's Kitchen deliveries back. You've got the easy comps from last year. You've got the Love Island sale. All of the new program sales you highlighted like Snowpiercer. Last year, you were behind your medium-term 5% guidance. Can you quantify the better than 5% for this year? And what does that include for external sales?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [3]

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Okay. If I were to take BBC and Chris will comment on the Studios. So we have been discussing, as you know, how we do BritBox in the U.K. with the BBC for many, many, many months. And we have known for quite some time that because of the license fee and the value for the license fee that they had been wanting to extend what they do on iPlayer. So we've been aware of that for quite a long time. So it doesn't really change our projections. What is good, I think, is that it becomes very, very clear that BritBox is the second window. So it's live. It's iPlayer. It's BritBox. It doesn't go anywhere else. It's Hub, it's BritBox. And that was not the case previously. Previously, a load of programs would go dark. No one would know when they'd come back. No one would know where they would appear. I think every British consumer now knows that once it's appeared on catch up, it's gone live, it's gone catch up, it's BritBox. And that is a huge plus from a consumer point of view, and consumers would rather know that there's one place to go to get all of that content rather than be very confused by where that content is going to appear at any given time over the -- whatever period it is.

I think the way people view streaming is very, very different to the way they look at catch up and live and that's what we've learned a lot in our research. There's no time pressure on people watching streaming. So they're quite happy to have library content that will just sit there because they're paying for every month and watch it whenever they want, when they've got time, when they're feeling that it's a rainy day, whatever it might be. It's a very different kind of way of viewing to having to watch something live, otherwise it goes out of date, or having to watch catch up in a certain window. So we've kind of been -- this is not a surprise to us, put it that way.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [4]

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And then as to Studios, I don't think David would ever say he has an easy comp to lap. But we have got a really good delivery slate. We've got -- we're GBP 130 million more committed revenue for the year than we had previously, which is why we've reiterated the at least 5% guidance. But we're not going to go further at this point in the year.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [5]

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And sorry, just on the external sales? Are external sales going to grow within that? Are they consistent with the above 5%?

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [6]

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Yes. External sales will be in line.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [7]

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So above 5%?

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [8]

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We're saying at least 5% at least, yes, at least.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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It's Lisa Yang from Goldman Sachs. My first question is on your advertising outlook. I'm just wondering like what underpins your confidence in this Q3 outlook. Because it looks like it's better than obviously what most people expect here and what media buyers have indicated. So just wondering, is it based on your conversation with advertisers on the bookings? Has visibility improved? That's the first question. The second one is on BritBox. Just wondering how do you think about the overall envelope for programming spend on the -- in a run rate year, supposedly next year? And how much of that will be, for instance, original commissions from ITV Studios? And how should we think about the internal transfer of revenue and costs?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [10]

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Could you just repeat the first bit of that question because I missed that, the first piece of the BritBox question?

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [11]

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Sure. Yes. I was just wondering if can you give us more color on overall envelope for -- on programming spend on BritBox? And how...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [12]

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Program spend on?

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [13]

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On BritBox.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [14]

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On BritBox program spend?

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [15]

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Program spend.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [16]

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Yes.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

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And how much of that you think will be coming from ITV Studios? And the last question is on ITV online advertising. So we continue to see your advertising growth outperform your online viewing growth. So just wondering how sustainable that is. And is it just reflective of broader CPM inflation?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [18]

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Okay. So on -- I think on the first question on advertising, I think we are -- it has been -- the -- it has been very hard to read this year on the quarters. With March being the deadline for a deal and then it not happening had a knock-on to Q2. And then Love Island comes in and then VOD grows. So it's hard to read. And I think what underpins what our outlook has been to today is kind of what we're seeing in our numbers and also what we're hearing from our advertisers. So that's why we put that into the outlook.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [19]

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And we've got a good view on July, which, as I said, is probably going to be around minus 5% this year versus plus 10% last year. I don't know...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [20]

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It doesn't mean Kelly can go on holiday. It still means he's got to work very, very hard for September. So yes.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [21]

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Yes. And I would say so August, we've got a pretty good view. September, it's still early days, which is why we've got quite a wide range on the September outcome. But I mean overall we're comfortable with the minus 1% to plus 1% for the quarter.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [22]

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So on BritBox, we haven't really disclosed our program spend. We think that's slightly -- we just -- we haven't really talked about a number. And I think what we really have to do on BritBox is it can't -- you can't look at it on a quarter, right? I mean honestly, if you try to do that, it will just be pointless. It will be meaningless because it has to build and it has to build slowly. And so commissions take quite a lot -- so you commission, it takes quite a long time. Dramas can take anything from 18 months to 2 years to put on air. So we're looking at this in as agile a way as we possibly can, and we have lots of commissions already in the pipeline in terms of concepts and thoughts. And as I said, we will be announcing our first commission shortly. But what is, I think, quite good is we can do this with lots of different lenses. We can do it for the channels. We can do it for BritBox. We can -- so we can be very flexible, I think, about what's coming in. So Reemah, can -- do you want to talk a little bit about that?

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Reemah Sakaan, ITV plc - Director of Network Marketing & Media Planning [23]

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I think [we're all looking at] program spend (inaudible). In the last 60 years, we've seen ITV have spent billions on programming, which we'll be moving into BritBox. Each year collectively, the network spends about GBP 3 billion in content which will be flowing network. And then there's tens of millions of pounds related to commissions. So collectively, all of that is landing, both at the library of things that are flowing off the networks and then new commissions we'll be making. The shape and size of those will be different, different programming creative opportunities. And to answer your question about Studios, BritBox is open for business for all of (inaudible) who feel creative. We obviously really enjoy working with our own Studios companies, and it makes sense for us to do that as they're our first pitch call. But really broadly, we're speaking to everyone at the moment.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [24]

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Yes. I mean clearly, we want to get the most creative original content for BritBox. If we can do that via ITV Studios, of course we will do that, but we will also be open about where those ideas come from. I think that's really important. Reemah, just since then, I'm sure many of have seen our -- the Capital Markets Day, that she is the lead Launch Director for BritBox. So that's why she answered that question so well.

Online advertising. So your question there is you're saying the...

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [25]

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Online advertising...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [26]

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Online advertising is growing strongly, and your...

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [27]

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Growing faster than the online viewing growth.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [28]

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Yes. But I think that's just a catch-up effect. So I think it does demonstrate that advertisers are doing a lot of testing and learning in the kind of online environment, and, therefore, they are using it. They are using it, and they are learning all the time because it's such kind of an immediate feedback loop. But that will soon -- there's a gap that will soon plateau out, I think.

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Joseph Barnet-Lamb, Crédit Suisse AG, Research Division - Research Analyst [29]

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Joe Barnet-Lamb from Crédit Suisse. A couple from me, please. Firstly, on CapEx. We've got a fairly substantial step-up in CapEx this year with regards investment in your addressable advertising platform. Can you help us understand beyond this year if you expect significantly elevated CapEx levels? Secondly, Direct to Consumer. You're obviously guiding to an improvement in H2. The margin on pay-per-view is substantially different to some of your other D2C revenues. So can you help us understand if the material improvement in H2 is the pay-per-view just comes back?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [30]

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You take.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [31]

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Yes. So -- yes, on the CapEx, we've increased the guidance. The -- how I would characterize it is there will be elevated spend next year as well and, to a much lesser extent, the following year. But this would be, certainly from the -- as it relates to addressable, this is peak year for addressable advertising. So you can expect it to come down in '20 and then further in '21, but it would still be above the sort of the GBP 55 million long run kind of spend that we've had.

And on D2C, no, the -- we've obviously got the great performance from both -- well, from Hub+. Then the real downside in the first half was just not having Saturday Night Takeaway in the first half and the competition spend associated with that. We've got a very strong schedule in the second half, so we'd expect that to come back. So we're not reliant on further pay -- low-margin pay-per-view in the second half. It's a catch-up.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [32]

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And it's worth just saying on PPV that it's still a trial and a test for us. This is not a kind of established feature of D2C. We are still working through whether the margin is worth the effort.

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Joseph Barnet-Lamb, Crédit Suisse AG, Research Division - Research Analyst [33]

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And therefore, that's not central to your long-term guidance in D2C?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [34]

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Definitely not.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [35]

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And then maybe go through Julien...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [36]

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Julien, Patrick.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [37]

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And then Patrick.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [38]

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Julien Roch of Barclays. On the timing of the BBC going back -- going to 25%, can you give us any indication? Is it next year, in 3 years, in 5 years? And when they go to 25%, will they pay you in kind or in cash? That's the first question. You say there is quite a high likelihood of another broadcaster joining. So are we talking again at joining with a 10%, 25% stake? Or would you be happy to lose majority ownership as a second question? And then the third one is on addressable advertising on TV set because you talked about -- there was a slide about your progress on programmatic, but it was all linked to the Hub. When can you replace spot on your linear program? And is the fact that advertising is sold on a share deal basis, is that an impediment to targeted advertising on linear?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [39]

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Okay. Do you want to take that? So the -- we have a contract with the BBC which, over the next 3 years, they have the option to increase their stake. It would be a cash -- it would be about cash, not in kind.

And the -- your second question is about other partners. We don't want too many partners because we want this to be as simple and as fast moving as is possible. It's an entrepreneurial business, and it needs to move quickly. But we would welcome other -- a couple of other partners. We will always have the majority shareholding at BritBox.

The third thing was about -- I think your question really, Julien, is that about linear addressable effectively?

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [40]

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Yes.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [41]

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Linear addressable.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [42]

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Okay. Can you do it? When? And...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [43]

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So it has nothing to do with share deals. We'd love to blame share deals for that, but it's not true. It's technology. And the novelty, yes. Now you'll gave me an example about Spain. But actually, in Spain, they do it in -- with hybrid TVs, and it's still early days and they're still testing it. Penetration of hybrid TVs in this country is very, very low. And therefore, it's just not taken off. So linear addressable is technologically -- there's no solution. And we have looked. We have looked.

There's another thing I would say about linear addressable, which is on main channel at peak time, people are buying ITV because they want big audiences. They are -- it is a mass audience quality buy. And actually, by complementing that, by doing linear addressable on Hub, is a fantastic offer for advertisers. So I think actually, we'll be in a strong position regardless of not having the technology to be really able to do linear addressable.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [44]

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It's Patrick Wellington, Morgan Stanley. Carolyn, you're very careful, when you talk about advertising, to cite political and economic uncertainty. And yet strangely, when I look at the forecasts of advertising agencies for U.K. advertising growth this year or the IPA numbers, they all seem to suggest that U.K. advertising has grown 4%, 5%, 6%, really quite strong numbers. So what's the disconnect there between what's going on and what's going on at ITV? And do you think it's more, as you say, a problem about your very big cash reserve for FMCG and retail and stuff like that?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [45]

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So I think there are advertisers that are certainly pausing and not spending across the board. They tend to disproportionately affect ITV because they have a very -- they are the retailers and the FMCG advertisers who have always been very big spenders on TV. So there's a disproportionate effect on ITV of them spending less money overall. I think that's the first thing. I think the second thing is when you have got a prolonged uncertainty, some advertising will go to mediums that are just quick, immediate and easy with low production costs who don't have to make a TV ad to put on air and then run it for quite a long time to get a return on that investment or run it for a certain period of time.

So I think you'll see outdoor has benefited from that. I think certainly, Facebook and Google have benefited from that. But I -- so I think that's really -- and radio has actually benefited from that. So very tactical. So when things get tough, people become much more tactical. It's not that you can't do tactical on TV. You can be tactical on TV. But you do have to create engaging advertising to do that, which means you have production costs. Because you can run a radio ad. You can record it very quickly in a recording studio. It's on air in a day. So I think there is -- that effect is definitely going on.

Now there's also -- there's no question, we've talked about this before, Patrick -- there are viewer trends, there are advertising trends. We are definitely competing with Facebook and Google, and that's why the programmatic advertising platform on VOD inventory is so important for us because it will allow us to take -- to start competing for hopefully other budgets. Because at the moment, our VOD advertising comes out of a TV budget, not out of the growth in online media. So your 4%, 5% growth is all online and outdoor and radio and all the other stuff put together. And we need to become in a position where we can compete for other pots of money, not just the TV pot of money.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [46]

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If I listen to that nice Arthur Sadoun at Publicis, he says that his problem is U.S. consumer, traditional advertising, big FMCG companies. They don't have Brexit to worry about there. But they a similar problem. So to what extent do you think you might have a structural issue as opposed to just a Brexit issue? And then to ask that more positively, you've talked about the -- your initiatives in programmatic advertising and so on. Do you think we'll see an uplift as we go through 2020 in VOD advertising? Will we see a noticeable difference? Will it come through in '21? What's the sort of timing of the revenue of those initiatives?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [47]

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So on the structural, I think FMCG companies and retailers are having massive structural challenges, and that is making them rethink how they operate and how they protect margin. So I think we have definitely seen that effect on our advertising. As I said, I think there are viewer trends where we're trying to capture total viewing because viewers are viewing differently. And that's why Hub is so important. That's why BritBox is so important. But Hub particularly because it's an advertising platform as well as AVOD. So it's very hard to disentangle, I think, the economic, the Brexit effect from the viewer and advertising trends. And advertising is really all about the viewers and where you can deliver the audiences and what you can deliver and prove that you -- that it works, the effectiveness. And TV advertising is very effective.

We've talked about the pendulum swinging towards Facebook and Google, because is very measurable. It's all about clicks. I mean we will be able to be more evidence based in what we deliver on Hub, much more measurable. We can do that on TV, but it just takes a longer time because campaigns take time to build on reach and frequency. So I think it's just different. I definitely think there is an economic effect on our advertising, and you can see that because NAR went down in 2016 and has gone down every year since. And before 2016 when there were still streaming services, there was still Facebook and Google that would -- everything that exists today existed then. We had 6 years of NAR growth from 2010 onwards. So I think there's definitely a Brexit effect. But that's part of the strategy, is to address the way we can compete with Facebook and Google. Has to be.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [48]

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And timing of -- at VOD, revenue upturn, financial (multiple speakers)?

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [49]

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I think you've got 2 sort of countering trends. So programmatic will definitely help VOD in 2020 and 2021, so that will raise growth rates. But obviously, you've got the law of big numbers coming to play as well so that as VOD becomes bigger as a percentage of ad revenue, then the percentage growth in it will slow. So you've got those 2 trends.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [50]

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It's Richard Eary from UBS. Just a follow-up on the sort of the online side. I think historically, you gave some stats about how much online viewing was a percentage of total hours. So I don't know whether you can give us a number for the first half. And within that online viewing numbers, how much of that is targeted today? And given obviously the launch of Amobee and programmatic going forward, how much do you think will be targeted as we step through the next 12, 18 months?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [51]

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So do you want to -- Kelly, do you want to talk about how much is targeted today and the manual nature of what we've done and how it's going to be automated?

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Kelly Williams, ITV plc - MD of Commercial & Member of Management Board [52]

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So there's 2...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [53]

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Just so -- Kelly is our Managing Director of Commercial.

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Kelly Williams, ITV plc - MD of Commercial & Member of Management Board [54]

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I think just in terms of the amount of inventory that's targeted, it's about 75% of our inventory is targeted today. There's a slight difference -- Amobee is a bit more than targeting. Amobee -- we've had targeting for a little while and that's growing. What Amobee is going to do is automate that targeting. So we would expect over the next kind of 18 months for that 75% to start moving towards 100%. Our ambition is to get every agency onboard with Amobee during 2020. And once we've done that, the vast majority of our inventory will be addressable and automated.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [55]

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Because currently, it's all manual. So it's extremely difficult to do.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [56]

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Can I just ask, Kelly, what -- in terms of the yields between targeted and non-targeting, what's the differential?

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Kelly Williams, ITV plc - MD of Commercial & Member of Management Board [57]

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We -- well, we -- for non-targeted, we kind of have a flat CPM, which is broadly about GBP 28. And then for targeting, it depends on what you're targeting. But for -- so we have premiums above that depending on how sophisticated the target becomes. So -- and the minimum yield would be another 10% above that, and then it could be more depending on the sophistication of the targeting.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [58]

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Any other questions? Laurie? Second time.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [59]

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Yes.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [60]

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Second round.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [61]

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It's a quiet crowd. On SDN...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [62]

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SDN, yes.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [63]

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The license for the Freeview multiplexes expires in either 2021 or...

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [64]

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2022.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [65]

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2022.

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [66]

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That's '22.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [67]

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Correct. After that, are you going to have to pay to renew the SDN license? Would you potentially sell it if that license were revoked? And how does that fit into your contract renewal with Ofcom and your license costs?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [68]

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So we are in conversations. We will continue to be in conversations. We've run that license for 15 years extremely successfully. So it's too early really to give you any information about that. But we're honest, and we're talking to Ofcom, we're talking to everyone relevant on SDN. So...

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [69]

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Is there a potential cost item, though, that comes in from that when you have to renew that contract and pay for that?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [70]

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Not at the moment.

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [71]

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I can see we have 2. As Carolyn said, I think that the testament is we've run it very, very successfully for 15 years, so it puts us in a good position to renew or extend.

Any more questions?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [72]

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Any more questions?

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Chris Kennedy, ITV plc - Group CFO, Director & Member of Management Board [73]

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No?

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Carolyn J. McCall, ITV plc - Chief Executive, Director & Member of Management Board [74]

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If there are no more questions, thank you all very much indeed. Thanks for coming.