It adds up to a huge retrenchment. Though sales slid only three percent to £2.02 billion, ITV is writing off a massive £2.69 billion in Broadcasting and Online operating costs - accounting for the £2.7 billion loss - leaving it staring at one of the worst performances in British media history. Ad sales are down four percent from the year before but are forecast to be down 17 percent by March.

Online sales had increased nine percent to £36 million, but half of this is from Friends Reunited, which nevertheless, lost 18 percent of its sales, as was always likely to happen after abandoning its paid subscription model mid-year. Also within online, ITV.com sales were up 60 percent to £18 million, half of which is now from video ads. But the overall loss from online ops grew from £12 million to £20 million thanks to the “weakening’ online ads market and Kangaroo being blocked.

ITV’s annual report today says: “Friends Reunited remains a highly profitable and successful online business, but our new strategic focus on streamed video does not play to its strengths and we will look to dispose of the business when the time and the price are right.” Instead, “online, ITV is focused on delivering ITV content via itv.com and VOD. ITV is clinging to ITV.com’s growth in video views to 85 million. The annual report says ITV will make ITV.com a “premium VOD entertainment site” - but it’s not clear that “premium” means pay-for.

ITV recorded a £1 million loss on Kangaroo in 2008. In its absence, it will “exploit our catalogue to deliver ITV programmes via open and closed VOD services”: “We do not want there to be any further delay in exploiting the ITV archive online via itv.com and we will not be appealing the decision.” Online job losses coming? “With Kangaroo not going ahead ... there is the opportunity to simplify structure and reduce costs.”

Release | Annual Report | Webcast (9.30am GMT)

Executive chairman Michael Grade’s full statement…

“Current conditions in the advertising market are the most challenging I have experienced in over 30 years in UK broadcasting. This is reflected both in our financial results for 2008 and the tough actions we are announcing today.

“Our priorities have to be aligned to the changed economic context. The Board therefore recognises that the 2012 revenue targets set in 2007 are no longer appropriate and we are focusing on our core business as a producer-broadcaster, on reducing our costs and on cash generation. Our audience share target remains unchanged.

“We are now implementing the plan needed to enable ITV to get through this difficult period and emerge as a leaner and fitter business. We will deliver annual cost savings in 2011 of £245m against the 2008 outturn. Of this, £155m of annual savings will be delivered in 2009, rising by £20m to £175m in 2010. These savings will come from all our businesses, including our programming costs.

“The Board is recommending the suspension of the final dividend. This is not a decision taken lightly. The Board’s judgement is that it represents the prudent course in present conditions.

“We have secured £360m of covenant-free financing and additional debt over the last year, including a new £50m loan. We will seek to dispose of Friends Reunited and are considering options for SDN. Earlier this month, we repaid the maturing £250m bond from our cash resources. Our next bond repayment is in October 2011. The Board will continue to evaluate all options to improve the strength of the balance sheet.

“Even in these difficult times, we should not lose sight of the progress the business has made. We are continuing to deliver our advertisers mass audiences night after night and are holding our share of audience and of television advertising. We have delivered revenue growth in Global Content and a huge increase in video views online.

“We welcome the progress we are starting to see with respect to regulation. The review of CRR is well underway and, having approved our 2009 plans, Ofcom has proposed further restructuring of regional news for 2011. In both areas, we believe urgent decisions are called for. ITV, like all broadcasters, is responding to the Government’s request for radical ideas on the future of PSB.

“Visibility on future revenues is limited and trading in 2009 remains uncertain. However we expect to continue to outperform the market, increasing our share of television advertising revenues for the full year once again.”