By Paul Sandle
LONDON (Reuters) - British broadcaster ITV (L:ITV) expects advertising revenue on its television channels to fall 7 percent in the run-up to Christmas because companies have become less confident about the economy after the Brexit vote.
ITV forecast earnings for the year would be broadly flat, in line with market expectations, helped by growth in a production business that makes shows such as "Poldark" and "Cold Feet" and now accounts for close to 40 percent of its revenues.
Uncertainty about the relationship Britain is seeking with the European Union following June's vote to leave was making advertisers nervous, Chief Executive Adam Crozier said, commenting on prospects for the last three months of 2016.
"We are certainly not seeing campaigns pulled or cancelled," he told investors on Thursday. "(But) we are seeing some decline across the majority of the key categories."
Advertising spending this time last year was boosted by the rugby World Cup which was broadcast by ITV.
ITV, like other commercial free-to-air broadcasters around the world, is having to adapt to changing viewing habits, as audiences watch more content from Netflix (O:NFLX) and Amazon (O:AMZN) or on platforms like YouTube.
Crozier, however, said broadcast TV still had an unrivalled ability to deliver the mass audiences advertisers wanted.
"Ironically, digital advertising from people like Amazon, Netflix, and Facebook (NASDAQ:FB) (is up), rightly recognising the power of television advertising," he said.
Netflix and its rivals have shown a big audience appetite for scripted drama. Crozier said ITV was investing more into drama production in its studios business, which had secured 162 new commissions for next year.
ITV was now a "much more balanced and resilient business", he said, pointing to a 49 percent increase in online viewing and a 3 percent rise in share of viewing on its flagship channel in the first nine months, as well as its production units.
But it still relies on advertising for about 60 percent of its revenue, and Crozier said most categories were down.
Supermarket advertising had been hit by pressures on the sector, he said, although the retailers were "stirring" ahead of Christmas.
The festive advertising season begins in earnest later on Thursday when ITV's main channel broadcasts John Lewis's new Christmas ad for the first time.
The department stores group has set the standard for high-profile, big-budget Christmas campaigns in recent years.
ITV, Britain's biggest free-to-air commercial broadcaster, said net advertising revenue would fall by 3 percent over the year as a whole.
Shares in ITV, which have fallen 20 percent in the past couple of months reflecting lowered expectations, were trading up 1.2 percent at 168 pence at 1318 GMT. Citi said in a note that ITV’s earnings per share felt "better shielded than in the past" in the face of falling net advertising revenue.
The company said last month it would cut 120 jobs to trim costs, helping it to deal with uncertainty after the Brexit vote.
"The Sept/Oct advertising weakness was at the peak of uncertainty around Brexit, November and December are seeing a calmer response," said analysts from Jefferies, who have a "Buy" rating on the stock.
Crozier hinted at more deals to boost the production business, saying the company had a "good, strong" M&A pipeline but would show discipline.
ITV had a 1 billion pound offer for Canada's Entertainment One (L:ETO), maker of children's TV show Peppa Pig, turned down in August.