The terrible financial results reported today by ITV, the UK’s largest commercial broadcaster, illustrate the collapse in traditional television advertising business models as the recession’s bite deepens. The £2.7bn loss (on turnover of £2.02bn) results largely from reduced expectations for future advertising revenue. Television advertising revenues are currently in freefall, declining in the current quarter at a rate of 17% compared to a year ago, and that’s why the company is having to make 600 people redundant and suspend production of some of its most popular shows. As Michael Grade notes, UK market conditions are “unprecedented” in the past 30 years, and probably since the launch of commercial TV in the 1950s. Like many firms, ITV is now reluctant to forecast the outlook for its core revenue stream. It had previously assumed annual advertising growth rates of 1.5-2.0%. This assumption has clearly been blown out of the water. The recession is clearly a large part of the blame, but ITV has also made a number of strategic errors over the years, and those chickens are now coming home to roost. Buying Friends Reunited was always a strange move, and even though the business is profitable it has been non-strategic to the company’s core video and television business. It is now pushing ITV.com as a video portal and has launched ITVplayer in response to the phenomenal success of the BBC's iPlayer. ITV was also late to the party in multichannel television, having previously been caught up in the ONdigital/ITVdigital debacle nearly ten years ago. Its “family” channels (ie sub brands of ITV) are doing well, but they are competing in a world of several hundred TV channels and ITV had already missed the opportunity to establish a leading multichannel position. While traditional television advertising in free-to-air television will eventually recover, there must be real uncertainty as to whether it will ever reach the peaks seen in recent years as viewers move increasingly to on-demand services. For this reason, ITV’s online video distribution strategy is now key to its future. ITV.com now has 6.5 million monthly unique visitors, and this peaked at 9.4 million in November last year, making it the UK’s fifth most popular website. In total ITV.com delivered 86 million “video views” during 2008. ITV’s challenge is to continue to grow this activity and to turn its losses into profits: no easy task, but in the current environment this is about all the company has to hang on to. Twitter: twitter.com/dmercer15 Client Reading: Western Europe Digital Television Forecast: 1H'09