Publications

Format: Jul 2019
Sector(s) Datesort ascending
Slower but steadier: TalkTalk Q1 2019-20 results

TalkTalk suffered subscriber losses and falling consumer revenue growth in Q1, with churn still high despite the high speed base growing, countered by ARPU growing for the first time since 2017TalkTalk suffered subscriber losses and falling consumer revenue growth in Q1, with churn still high despite the high speed base growing, countered by ARPU growing for the first time since 2017

The subscriber drop was, however, modest and looks quite deliberate, with there being evidence of price firming in both direct and indirect channels supporting both ARPU and margin

This more cautious approach, if it can be sustained, puts the company on a much more healthy footing in our view, allowing it to achieve its financial targets without increasingly unsustainable existing customer price rises

  • Openreach
  • TalkTalk
Media, Telecoms 23 July 2019
How could the BBC ever fund the over-75s?

In the BBC’s 2015 funding settlement commencing 2017, the Government assumed the BBC would fully fund the subsidy for over-75s to the tune of £750 million from 2020/21

Although the BBC’s settlement contained measures of “mitigation” worth c.£290 million, the BBC would still have faced a gap of c.£460 million to be funded by programme cuts and efficiencies (the BBC has pledged £250 million)

Including c.£300 million from the annual adjustment of the licence fee for inflation from 2017 would help. However, this was always required to offset normal salary and cost increases to prevent a real decline in the BBC’s resources

  • BBC
Media, Public Policy, TV 19 July 2019
Netflix's US subscriber loss

Netflix lost 126,000 US subscribers (net) in Q2, the first time this has happened since 2011 when a price rise accompanied the Qwikster debacle

This time a price rise—of one or two dollars, depending on tier—was one culprit, but the soft release schedule of big, returning original series, which usually give a bump to subscriber additions, played a part

Q3 has those series returns in spades, Stranger ThingsOrange Is the New BlackMoney Heist and Mindhunter likely driving subscriber numbers back up, but the suggestion that there is less flexibility to raise prices than previously assumed is a worry for Netflix and incoming competitors

  • Netflix
Media, Telecoms, TV 18 July 2019
Future of Public Service Media: EPG prominence to the fore

Ofcom’s recommendations to Government suggest updating EPG prominence legislation to cover connected TVs, and were warmly welcomed by the PSBs

Balancing various commercial, PSB and consumer interests will be key; determining what content qualifies for prominence will be a particularly thorny issue to resolve

Extending prominence to smart TVs and streaming sticks is critical, but implementation will be challenging

  • Apple
  • BBC
  • Channel 4
  • Five
  • Google
  • ITV
  • Samsung
  • Sky
  • Virgin Media
Media, Public Policy, TV 12 July 2019
Google's Icarus moment

Google’s advertising business has begun losing market share in the US, with competition from Amazon, Facebook and Microsoft intensifying in search and display

In response, the company is redoubling efforts to reshape its apps, services, and the entire web for more efficient monetisation, spelling uncertainty for partners and users

The adaptability and complexity of Google’s services reduce business risk from targeted regulatory measures, but increase the pressure for a radical intervention

  • Amazon
  • Apple
  • Facebook
  • Google
  • Microsoft
Media, Technology 2 July 2019
Roku: OTT pioneer under threat

With c.22m accounts across 44m devices, Roku has a US footprint which exceeds the largest pay-TV platforms

Limited competitive advantages highlight the scale of this achievement, but also leave the pioneering firm vulnerable to activities from bigger, wealthier rivals Apple, Amazon, and Google as well as pay-TV providers

The odds are stacked against Roku, but continuing the innovation in production and product that built its lead may secure future success

  • Amazon
  • Google
Media, TV 1 July 2019
Reader-first news media

The number of people willing to pay for online news now roughly matches print paid circulation, and will soon be substantially greater, with publishers increasingly demonstrating that their strategies are influencing industry outcomes

Our thesis is that subscriptions work in some cases, but that a more systematic reader-first approach benefits all cases, recalibrating management focus to media’s core purpose

Effectively implementing such an approach is a more radical, transformative development than is sometimes assumed. The winners will deploy sophisticated, bespoke audience acquisition and retention funnels and undergo detailed appraisals of the trade-offs necessary for optimal user experiences

  • Guardian Media Group
  • New York Times
  • News UK
  • Telegraph Media Group
Non-UK Media, Internet, Media, Technology, UK Media 28 June 2019
A strict early privacy verdict for UK online advertising

The Information Commissioner’s Office reported on the UK online advertising sector, finding common industry practices unlawful under a strict interpretation of the GDPR and UK privacy law

The ICO focused on problems around transparency, consent and data sharing in the Real-Time-Bidding ecosystem, which comprises 16% of UK online ad spend, but most of publisher online ad revenue. The ICO is giving the industry six months to shape up, with the next steps still unclear

The Competition and Markets Authority has had under consideration an investigation into the entire online advertising sector, but is hampered by Brexit-related considerations

  • Amazon
  • Facebook
  • Google
Media, Technology 25 June 2019
2019 TV advertising backstopped by Brexit

We expect total TV ad revenues to decline 3.3% in H1 2019, partly due to a return to Earth following the idyllic conditions of the World Cup in June 2018

Bad omens for advertising for H2 include the sagging economy since April and the Government’s impetus to achieve Brexit on 31 October, with or without a deal

Our forecast remains a 3% decline for total TV ad revenues for 2019 as a whole, with the risk of a more serious downturn in 2020 in the wake of Brexit

  • Channel 4
  • ITV
  • Sky
Brexit, Media, Telecoms, TV, UK Media 21 June 2019
Toughest conditions in four years: European mobile Q1 2019

European mobile service revenue growth slipped again to -2.0%; its worst performance in four years

Regulation limiting intra-EU call prices could hit hard next quarter – with the UK likely to be hardest hit by up to 6% of revenues and 20% of EBITDA

Excluding the EU-call impact, we see greatest scope for improving trends in Italy and France thanks to easier comps and diminishing competitive intensity

  • BT
  • Hutchison 3G
  • Iliad
  • O2
  • T-Mobile
  • Telecom Italia
  • Telefonica
  • Vodafone
Media, Telecoms 19 June 2019
Pressure to mount after mixed bag in Q1: UK mobile market Q1 2019

The UK mobile market posted its slowest growth in more than two years this quarter; just 0.5% service revenue growth although net adds were strong and churn was down

ARPU is under considerable pressure thanks to regulation limiting out-of-bundle spend which will exacerbate as the year progresses

Several other negative developments look set to be layered on the pressures this quarter, including a step-up in competitive intensity as 5G launches –  with H3G’s pricing of unlimited data a sign of a resurgence in its aggression

  • BT
  • EE
  • O2
  • Ofcom
  • Vodafone
Media, Telecoms 12 June 2019
Channel 4’s balancing act: 2018 annual report

Mindful of the uncertain future effects of ongoing events, most notably the stagnating TV ad market and the costs of establishing an HQ in Leeds, Channel 4 returned a £5 million pre-tax surplus in 2018, which after investment in Box left its cash reserves at £180 million

Increased digital revenue more than made up for the anticipated drop in spot advertising and sponsorship (with group viewing share and SOCI down) while cautiousness necessitated lower content spend (down 5% from the peak in 2016); a concern given rising content costs

Nevertheless, Channel 4 is doing a good job delivering its remit in a tough environment, continuing to broadcast programming no-one else would and leveraging long-standing relationships to nurture television and film of a quality and ingenuity that belies the modest size of the organisation

  • BBC
  • Channel 4
  • ITV
  • Turner
  • Vice Media
Media, TV, UK Media 11 June 2019
UK broadband, telephony and pay TV trends Q1 2019: Price wars dominate

Market revenue growth dipped to around zero in Q1, with fierce competition on new customer pricing the major factor

All four of the big operators now suffer from declining ARPU, with existing customer price rises increasingly hard to land given falling prices for new customers

The rapid move to superfast is not helping as much as it should; the operators will hope that they fare better with the move to ultrafast

  • BT
  • Sky
  • TalkTalk
  • Virgin Media
Media, Telecoms 10 June 2019
O2: holding its own in toughening conditions

After a period of significant outperformance, O2’s Q1 results reverted to sector average revenue growth with ARPU down by 3% and all of the growth coming from ‘other’ revenues

Regulation limiting out-of-bundle spending has been a significant drag which will continue to worsen

A more competitive market and a punishing regulatory outlook will make it very challenging to sustain 2018 growth trends as this year progresses

  • O2
  • Telefonica
Media, Telecoms 7 June 2019
Monetising user-generated video

Video sharing platforms, like YouTube, Facebook Watch and Twitch, are vying to attract creators with monetisation options such as branded content and user payments

Advertising income, already limited for many small and medium-sized creators, has been undermined by YouTube’s response to brand safety concerns

The new tools come with their own obstacles, but are necessary to keep platforms attractive to video creators

  • Amazon
  • Facebook
  • YouTube
Internet, Media, Telecoms, TV 6 June 2019
Advertising Pays 7: UK advertising's digital revolution

Online advertising plays a larger role in the UK economy than anywhere else in the world, having grown hand-in-hand with the highest ecommerce spend per capita and a business creation boom

There are many factors behind this success, access to investment and top talent (both technical and creative) structural characteristics in the economy and society—not least a culture of experimentation and entrepreneurship

As with all maturing industries, sustaining future growth will bring new challenges: along with economic headwinds, UK online advertising now faces an urgent need to restore public trust, with a combination of statute and self-regulation

VIP List, Media, Telecoms 5 June 2019
HFSS advertising ban consultation

The UK government is now consulting on a wider TV advertising ban until 9pm for food and drink high in fat, salt and sugar (HFSS), to combat childhood obesity

TV and TV advertising are not the cause of children being overweight or obese (O+O). Policy change in this area should inform and educate parents and young children, as they have in Leeds and Amsterdam

With 64% of the UK population being O+O, obesity is a complex societal issue requiring a multifaceted approach. The evidence from existing rules, and plummeting TV viewing amongst children, says that further restrictions on TV advertising will be ineffective in curbing the rise of obesity in the UK

  • BBC
  • Channel 4
  • Comcast
  • Freesat
  • Freeview
  • ITV
  • Ofcom
  • UKTV
VIP List, Media, TV, UK Media 3 June 2019
TalkTalk: a welcome slowdown

TalkTalk hit the bottom end of its (revised) 2018/19 EBITDA guidance, an achievement given fierce price competition and the margin-dilutive effect of high speed upgrades

This is however helped by one-off Openreach price cuts, and price rises for ancillary products (voice calls and pay-TV) and out-of-contract customers that look hard to sustain

Subscriber growth slowed dramatically in Q4, and continuing this more measured approach could help the company counter multiple market pressures, and perhaps even lead to a détente in the current price wars

  • TalkTalk
Media, Telecoms 30 May 2019
Vodafone: pressure is still on

Vodafone’s operating performance worsened again this quarter with revenues down 3.3% and an extension of its underperformance relative to peers 

Vodafone was right to cut its dividend given the extremity of the cash constraint. With financials in Euro terms in negative territory and worsening, an elevated and progressive dividend was not sustainable 

In spite of difficult market conditions, the lower end of guidance looks achievable as comparables will become easier and football rights costs decline. The transformation programme will need to pay off fast to deliver any meaningful growth
 

  • Vodafone
Media, Telecoms 24 May 2019
BT: Promising future, but investment required

BT is accelerating its ‘full fibre’ rollout, likely due to a combination of a successful build to date, very promising regulatory developments, and (let’s not deny it) worrying competitor build plans

Full year results were a little weak versus consensus, with guidance a little soft as well, leading to questions of how this can be funded, particularly the roll-out acceleration from 2021/22 to cover half the country by the mid-2020s

Whatever the funding mechanism, we regard the investment as sound, with BT’s planned operational transformation also promising but potentially requiring further upfront investment

  • BT
  • EE
Media, Telecoms 21 May 2019

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