ITV_logo_51289867ITV has signalled that it is looking for a new creative leader to run in-house production arm ITV Studios. Lorraine Heggessey, CEO of production company Talkback Thames, and Channel 4 television director Kevin Lygo are two names being talked about. Current ITV Studios boss Lee Bartlett is expected to be moved sideways.

Adam CrozierWhat to do about ITV Studios will be right at the top of incoming CEO Adam Crozier’s in-tray when he starts work this morning.

His predecessor Michael Grade trumpeted that he wanted ITV Studios to provide three quarters of all ITV’s programming. By law independent producers must supply the rest. Instead, the percentage of programmes supplied by ITV Studios has declined. In 2005 ITV Studios provided 66% of the network’s schedule. Last year that fell to 47%.

“ITV Studios has been drifting for the last 15 years, haemorrhaging great people and losing bit by bit to indies which are simply better and more efficient,” says one former ITV executive. “ITV has been muddling on with in-house production declining each year.”

Insiders complain that production has always been undervalued. ITV cut the amount of money it invested in programmes by £20 million last year.

A look at ITV Studio’s current slate does not inspire much confidence, another insider tells me. It’s the usual mixture of “celebrities” – and I’m using the word in the broadest sense here – cooking, skating or being stranded in the jungle. The rest of ITV Studio’s 47% share is bumped up by perennial soaps Coronation Street and Emmerdale Farm. The former is almost 50 years old, while the latter is a mere stripling at 38.

ITV chairman Archie Norman has told the Times that he is unhappy with the development pipeline. Although ITV Studios has had some good successes, he says, it has not developed a big global hit. Attracting younger, more middle-class viewers is, he argues, “an absolute priority … building new editions to the programme family – that’s the next big challenge.

And Crozier may have some extra cash to invest in the production arm. Investment bank UBS expects ITV will spend an additional £50 million on new programmes this year. The increase in TV advertising spending -– April’s figures are forecast to be up 20% year on year — will create income to plough into new shows. Last year ITV cut programming budgets by £20 million. Consultancy Screen Digest expects ITV’s overall revenues to rise by £100 million this year to £1.4 billion.

The broadcaster has long faced a dilemma with ITV Studios. Should it mostly show programmes made by its production arm, and risk losing advertisers? ITV Network, which programmes the broadcaster, resents being tied so closely to ITV Productions. Or should it cut ITV Studios loose completely? After all, ITV’s biggest shows — The X Factor and Britain’s Got Talent – are made by indie Talkback Thames/Syco for the network. Buyers who have circled ITV in the past, such as the Goldman Sachs group led by Greg Dyke, have all concluded that ITV Studios must be sold off.

Some argue that ITV Studios too is hampered by being so close to the broadcaster. The ITV connection means it cannot sell its programmes as freely as it wants to. This puts its creative talent in an invidious position. Many of them quit to work for indie production companies instead. Drama head Andy Harries left to set up Left Bank Pictures. ITV Studios director Jim Allen became managing director of RDF Television last year.

“ITV’s problem is do they just keep things the way they are and accept lower rates from advertisers? Or does it cut ties and get the best programming?” says Tim Westcott, senior TV analyst at Screen Digest.

Selling off ITV Studios would leave ITV with less secondary revenue though. ITV Studios sells formats overseas. For example, ITV Studios has made £57 million selling dinner party contest format Come Dine With Me to 20 territories, earning £57 million. This foreign income masks the slide in its domestic turnover.

One former ITV insider tells me, “Selling off the production business would raise cash, and in many ways provide a good, clean break with the past. But it’s probably against the long-term interests of growing ITV as a proper media business. Clearly, an integrated production/distribution business is best.”

So what else could Crozier do to increase ITV Studios’ percentage of the schedule? He could always buy up some smaller indie producers. TV analyst Claire Enders of Enders Analysis thinks that ITV Studios has enough money to make a couple of small acquisitions. Others tell me that what ITV needs to do is think big and buy a super-indie like All3Media, Endemol or Shine, something which would really make a difference.

“I would be surprised if there’s a big deal unless production and broadcasting are split in two,” media commentator Steve Hewlett tells me. “My expectation is that Crozier and Norman are going to have to invest in more talent and production companies.”

Good talent is in short supply however.

“This is a big decision that ITV has been ducking for years,” one indie producer says. “Investing in shows and the people who make them is not a quick fix. It’s a long-term game plan. It could take at least five years before it has any real impact.”

It may be there is no single answer to ITV Studios’ problems. Rather, there are a dozen solutions that need to be forged into the silver bullet.

ITV’s great strength is that it can deliver big audiences. The climax of The X Factor delivered a peak audience of 19 million. Advertisers cannot find that size of TV audience anywhere else at the moment.

Somebody once told me there is nothing wrong with this business that a hit show wouldn’t cure. The question is can ITV Studios find that elusive hit?