ITV (LSE:ITV) has often looked like a dirt-cheap FTSE stock to me, and I’ve tried to talk myself into investing (possibly out of nostalgia for shows like Heartbeat and A Touch of Frost!). But when I check in every few months to review the share, it’s gone nowhere.

Not much has changed on this front. The share price is up 1% in 12 months and down 1% over five years. Not great drama then, though someone who invested four years ago would be down by 38%.

Yet I can still see the appeal. There’s a well-supported 6.3% dividend yield on offer, and the price-to-earnings (P/E) ratio of 7.7 is very undemanding. Indeed, it could prove to be an outright bargain if investors start reassessing the broadcaster’s prospects.

Let’s take a closer look.

ITV at a glance

Like one of its two-part dramas, ITV is split into two businesses. There’s the Media & Entertainment unit, which houses its broadcasting (traditional TV channels) and streaming (ITVX) operations. This earns money primarily through advertising.

The other part is ITV Studios, which is its production business. This creates content for both itself and third-party streaming companies like Disney, Netflix (NASDAQ:NFLX), and Amazon Prime Video.

For example, it made Rivals (Disney), Run Away (Netflix), and The Devil’s Hour (Amazon Prime Video). And it licences out popular TV formats like I’m a Celebrity... and Love Island around the world.  

In Q1, Studios’ revenue edged up 1% as it recovered from the Hollywood strikes, but the other division reported a 2% fall in ad revenue. Group revenue was down 1% to £875m.

Worrying decline

My view is that I like the Studios operation and think there’s value in it. In fact, I’m surprised a content-hungry streaming giant hasn’t swooped in and acquired it — or the whole company — by now.

After all, ITV’s enterprise value is £3.37bn. For context, Netflix plans to spend approximately $18bn (£13.3bn) on content this year alone!

For me, these figures put into sharp focus what ITV is up against. Netflix has become the global TV channel and has ambitions to become a $1trn company by 2030. In contrast, ITV’s revenue is forecast to rise by less than 2% this year.

It’s important to understand the competitive dynamics here. While Netflix’s profits and content budget march upwards, traditional UK broadcasters are having to make cuts.

For example, the wonderful BBC period drama Wolf Hall: The Mirror and The Light had to cut loads of planned scenes set outside due to budget constraints. Cast members had to take a pay cut to get it finished.

Wolf Hall‘s director Peter Kosminsky said there is no way the BBC or ITV could afford to make Netflix’s hit series Adolescence (too many paid extras, for one). I fear this will eventually show up in programming quality, cementing Netflix’s dominance further.

Recently, MPs suggested taxing streaming giants to save the UK TV industry from oblivion. This presents some regulatory risk for Netflix. While I’m broadly supportive of this, I’m also not keen to invest in an industry that might need saving by the government.

Of course, ITV could be acquired, potentially creating decent returns from today’s 78p. But I would rather consider investing in the disruptors (Netflix, Disney, or Amazon) than the disrupted.