Can Carolyn McCall pull off an epic finale at ITV?

Drama queen: Carolyn McCall has been chief executive of ITV since 2018

This has not been the easiest of times for ITV’s ambitious chief executive Carolyn McCall. 

Transforming a UK-focused terrestrial broadcaster into an international player in a rapidly changing media market, where the likes of Sky owner Comcast and Hollywood studio giants struggle with ever more rapidly changing tech and viewer promiscuity, is no easy task.

It is not made easier by the great British pastime of turning a falling out on the daytime sofa between wholesome presenter Holly Willoughby and Phillip Schofield into a sex-charged cause celebre on which everyone from former ITV presenter Eamonn Holmes to veteran warbler and defender of gay rights Elton John has a view.

The media noise saw McCall appear before MPs to be quizzed on Ofcom rules and the announcement of a barrister-led inquiry into the broadcaster’s handling of the case. Jane Mulcahy KC is expected to issue her price-sensitive findings on the response to initial complaints of alleged wrongdoing by Schofield and ITV’s human resources and senior management by early September.

All of this is a huge distraction for McCall more than five years into her stewardship of the broadcaster, with her determination to put in place, notwithstanding the limited resources of a second line creative player, a transformative deal that secures ITV’s financial viability and bolsters a lagging share price amid moving tectonic plates.

In a previous life, McCall stood up to the slings and arrows of a powerful tormentor, founder shareholder Sir Stelios Haji-Ioannou at budget airline easyJet. She still has ambition to do the same for ITV.

At the core of the transformation strategy is her effort to bulk up ITV’s already considerable presence as a production company with the acquisition of All3Media, one of the world’s largest independent producers, at a potential cost of £1 billion depending on how the deal is structured.

If achieved, the transaction would add dozens of new production facilities and an eclectic range of new shows to the output of ITV studios.

The creative output includes pioneering comedy-dramas such as Fleabag, cuddly rural England favourite Midsomer Murders and Claudia Winkleman’s BBC series The Traitors.

As reported in yesterday’s Daily Mail, the deal would also include subsidiary Studio Lambert – the production company behind Gogglebox. The goal of an All3Media deal is to limit ITV’s dependence on the all-important but volatile linear advertising market for mass audiences. It would give the broadcaster a dominant future as a world-leading production house embracing streaming through its pioneering ITVX platform.

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As a London-listed minnow in a world of Succession-style media monoliths, the UK’s commercial broadcaster is in a mean and highly competitive marketplace. Just how mean is demonstrated by the woes of Sky owner Comcast, which five years ago paid £32 billion for the UK’s pay and sports TV leader Sky after a bruising battle with Rupert Murdoch’s Fox.

At the time, Comcast proprietor Brian Roberts saw Sky technology and its ‘Q’ boxes as transformational during a rapid-fire visit to the UK. He is now looking to offload assets as fast as he can to pay down debt and invest in new content.

‘Comcast has never really articulated the logic of why it bought Sky,’ says Craig Moffett of research firm Moffett Nathanson. Comcast has already written down its European acquisition by £6.8 billion. Even more worrying is that its Premier League and other sports coverage is under threat from streaming operator DAZN and others.

Americans already have access to Premier League football through cable and streaming options. Roberts finds it hard to compete – just like ITV and the traditional Hollywood studios – with the sheer volume of content and global streaming power of Netflix.

McCall, advised by specialists Robey Warshaw and Credit Suisse, finds the case for a deal with All3Media compelling.

Already more than 50 per cent of ITV’s revenue come from outside traditional advertising. The addition of some £867 million of sales (the figure in All3Media’s latest accounts) would make ‘independent’ studios the dominant driving force of the group.

Standalone ITV Studios has been growing at 3 to 5 per cent a year and have been a less volatile source of income for investors. But structuring the deal will be complicated. ‘Cable Cowboy’ John Malone’s Liberty will be critical. Liberty owns All3Media with Discovery, which is part of the vast Warner Bros entertainment empire. Liberty also has a largely passive 10 per cent legacy holding in ITV which could help tip shareholders in favour of a transaction.

A £1 billion deal for ITV, with a market valuation of just £2.82 billion after the recent Holly-and-Phil wobble, would be a big ask.

Barclays reckons such a deal would be do-able with a mix of debt and equity and perhaps a larger, lingering Liberty stake in the expanded broadcaster.

The deal would give McCall an exit route in the next year or so from what has proved a tough gig, leaving with her head held high.