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ITV, BBC's BritBox lacks content, budget to thrive in UK

ITV PLC and British Broadcasting Corp.'s streaming service BritBox lacks the content and spending firepower essential in today's crowded streaming market, analysts said.

By launching with previously aired programming and a small budget, the joint venture is restricting its appeal and target audience, analysts said.

The lack of original content on the platform is particularly problematic given Netflix Inc.'s and Inc.'s success with blockbuster productions, Sarah Simon, senior analyst at Berenberg Bank, said. Originals are now the most-watched content on Netflix, according to Kagan, a research division within S&P Global Market Intelligence.

BritBox offers British shows and movies once they leave their catchup windows from the U.K.'s leading public service broadcasters, or PSBs, for £6.99 per month. The service features content from ITV, BBC, Viacom Inc.'s Channel 5 and Comedy Central units, and it is adding shows and movies from Channel 4 TV in 2020. A distribution deal with Comcast Corp.'s Sky is highly unlikely as the pay TV provider does not think BritBox would add enough value for its customers, according to reports.

The U.K. streamer will struggle to make a significant profit in its lifetime unless 90% shareholder ITV substantially increases its investment in the service, analysts said. The broadcaster had allocated £65 million through 2020. Comparatively, the U.K.'s most popular streaming service, Netflix, spent $15 billion on content in 2019 alone. BritBox recently reached profitability in North America, where it launched in 2017.

Increased investment carries its own risks. "Even if ITV devoted £100 million to BritBox, you would have to take that out of its overall profit, with a significant impact on earnings and we think [its] share price," Simon said. ITV may inevitably have to spend more on original shows or content partnerships to drive subscriptions, as older boxsets may not prove a big draw, Conor O'Shea, head media analyst at financial services firm Kepler Cheuvreux said.

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For its part, ITV believes there is an untapped market for programming from PSB libraries that can complement existing services such as Netflix for people who binge-watch mainly British shows, the company's subscription video-on-demand group director, Reemah Sakaan, said in an interview.

BritBox's target audience is likely older viewers who predominantly watch live TV, according to streaming expert Dani Warner from U.K. price comparison service uSwitch. The average age of an ITV viewer has steadily increased since 2010, data from media regulator Ofcom showed, with 83% aged 35 and over.

Both the U.K. government and Ofcom have warned that traditional TV is facing an existential crisis, with younger viewers rejecting it in favor of online platforms such as YouTube and Netflix. Reflecting this trend, ITV's viewership reach has witnessed year-over-year declines for several straight quarters.

There is also the danger that ITV is missing the bigger picture in its pursuit of a subscription model, analysts said. The broadcaster's biggest asset is its ability to monetize its audience through advertising, Simon said. One way it does this is by running ads on its free ITV Hub video-on-demand service, home to over 30 million registered users. The company recently launched a video-on-demand advertising platform to attract a broader pool of marketers.

BritBox could end up cannibalizing ITV Hub's audience by cutting into its total viewing time — which rose 13% year over year for the six months ended June 30 — Simon said. This would only further shrink the company's ad impressions already suffering due to its total viewership decline, she added.

O'Shea thinks ITV could see better returns by working on ITV Hub's advertising propositions than seeking to offset losses to its core business through subscription revenue. At worst, it risks confusing viewers with multiple streaming options, leading to the same cannibalization, he said.

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