Publications

Format: Feb 2020
Sector(s) Datesort descending
Weathering the storm: UK mobile market Q3 2019

The UK mobile market suffered its worst performance in six years this quarter as competition heated up and regulation continued to bite

Vodafone’s unlimited tariffs have proven popular, reaching 5% of its contract base in one quarter, helping to drive its outperformance

Some reprieve is in prospect next quarter, before the impact of out-of-contract notifications and automatic discounts from February, although there is the possibility of pre-emptive moves bringing some of the effects forward 
 

  • BT
  • EE
  • Hutchison 3G
  • O2
  • Ofcom
Telecoms 29 November 2019
UK broadband, telephony and pay TV trends Q3 2019: Darkest before dawn

Market revenue growth fell in Q3 to below 1%, and may drop below zero next quarter as existing customer pricing comes under more pressure

New customer pricing is however rising, and average pricing should rise much further as ultrafast increases in availability and popularity 

Political enthusiasm for full fibre should be welcomed, although some specific plans are likely to do more harm than good if implemented literally
 

  • BT
  • Ofcom
  • Openreach
  • Sky
  • TalkTalk
  • Virgin Media
Telecoms 2 December 2019
Prime Video Channels: part of Amazon’s bigger picture

Amazon Channels’ aggregation of third-party streaming services enhances the consumer appeal of its wider video proposition, provides incremental revenues and increases the stickiness of the Prime shopping service

Content partners range from major players (e.g. Discovery and ITV) to the more niche (e.g. MUBI and Tastemade), who all benefit from a ready-made platform, billing relationships and a receptive subscriber base. But the revenue shares, data costs and lack of direct customer relationships remain too high a price for some

Two and a half years on from its UK launch, opportunities for live, ad-supported and bundled content are diversifying the platform, but Amazon must prioritise discovery within Prime Video to continue to flourish

  • Amazon
  • Apple
  • ITV
Media, Telecoms, TV, UK Media 3 December 2019
The General Election of 2019

The polls predicting the outcome on December 12 currently imply a Conservative majority of around 18 to 100 seats, making a hung Parliament unlikely

The polls were wrong before: a 2017-sized error still yields a small working majority for Boris Johnson to get his EU withdrawal deal passed by the Commons and the UK out of the EU by the end of January and onto the FTA path

Labour had hoped for a 2017-style surge of support on the back of a big ground campaign fronted by Jeremy Corbyn, but the polls have not tightened as they did two years ago, though the party could still do well among late deciders

Brexit, Media, Public Policy 10 December 2019
The ayes have it: DMGT scoops the i

Low-priced quality tabloid the i has been bought by DMGT for £49.6m, a 4.5x multiple on historical operating profit. The sale provides a lifeline to JPI Media as Reach has withdrawn from negotiations for the local estate

The i signals growing confidence in consumer media at DMGT after a long period rebalancing the portfolio towards B2B, and new ownership serves as an opportunity to rethink and drive the i’s online service

Although the acquisition will be reviewed by the Competition and Markets Authority (CMA), we expect the deal to pass

  • DMGT
  • Johnston Press
  • Trinity Mirror
Media 10 December 2019
Bopping along the bottom: European mobile in Q3 2019

European mobile revenues remain decidedly in decline this quarter at -2% – a slight worsening since Q2 as the full force of cuts to intra-EU calls hits 

There are signs that dual-brand strategies may be reaching their useful limit as erstwhile premium customers shift to value

There is scope for some trends to slowly improve from here, although end-of-contract notifications will impact all markets before the end of 2020, with the UK first off the blocks in Q1
 

  • BT
  • EE
  • France Telecom
  • Hutchison 3G
  • Iliad
  • O2
  • Ofcom
  • Orange
  • SFR
  • T-Mobile
  • Telecom Italia
  • Telefonica
  • Vodafone
Telecoms 13 December 2019
Netflix: churn, content release and marketing

Netflix’s US business provides an insight into the patterns of the subscriber take-up of a maturing streaming service, trends that the comparatively nascent international markets may yet have ahead

Through analysis of the relationship between Netflix’s churn, subscriber additions, marketing spend and content release schedule, a clearer view of the rhythms of the streaming business become apparent

Rising churn, and correlation—such as the emphasis on returning original series during the year’s turbulent second quarter—gives guidance on Netflix’s likely future course, including its use of debt

  • Netflix
Media, TV 16 December 2019
Subscription game services: moving beyond core gamers

Subscription game services will finally allow platform owners and developers to deliver truly accessible gaming experiences for all, across devices, at a lower entry price point, and curated to ensure consumer safety—both in terms of cost transparency and content types

Consumer comfort with subscriptions should be embraced by the games industry and has already started in mobile. Apple’s Arcade subscription is the test case, providing focused all you can eat games that minimise exposure to violent gameplay, and the ‘free to play’ wild west

Core gamers remain the most vital and profitable games customer segment, but they have been overserved and are an obstacle to broadening the reach of games. Now is the time to move beyond this group, to restructure, expand, and normalise the games market in the next decade

  • Apple
  • Microsoft
  • Sony
Media, Telecoms 16 January 2020
Peacock: the future of ad-supported TV brands?

Comcast’s new, on-demand service, launching in April, is an attempt to break NBCU’s unsustainable dependence on sales to Netflix and other SVODs. Peacock provides a path of digital transition for advertising-funded TV with a revamped low-load, high cost-per-thousand model

Reach will be built with a free online tier and distribution to Comcast subscribers. Peacock seeks carriage from other pay-TV operators, with which reciprocal deals would make sense (i.e. HBO Max on Comcast alongside Peacock on AT&T’s platforms)

In Europe, where Comcast has no existing major free-TV offering to transition, launching Peacock will be challenging but could present Sky with ideas to counterweigh Netflix on its own service

  • Comcast
  • NBCUniversal International
  • Sky
  • Sky Deutschland
  • Sky Italia
Media, TV 23 January 2020
Signs of life in the property market

Expenditure on UK classifieds peaked in 2004, but has since almost halved to £1.95 billion in 2018. In every vertical, the print to digital transition of expenditure has favoured a first mover, leading to dominant positions that challengers find hard to disrupt.

The property market was stagnant in 2019, with stable house price growth but low transaction volumes as Brexit uncertainty held back sales. An expected cut in interest rates this year should contribute to a slight rise in transaction volumes.

The low tide of transactions has cemented the reign of Rightmove and condemned challengers to low traction. No. 2 player, Zoopla, plans for a major drive in 2020 after a 1.5-year investment spree by parent private equity firm Silver Lake Partners.

  • Amazon
  • Auto Trader
  • Facebook
  • Google
  • Rightmove
Media, Technology 27 January 2020
Winners and losers as the UK fibres up

The speeds made possible by full fibre build are unnecessary for most users in the short term, giving limited commercial advantage to those that can offer them, but are likely to prove essential in the medium/long term

The economics of full-scale, independent alternative networks look very challenging in our view – especially without the support of Sky – although there are some limited arbitrage/cherry-picking opportunities

The Openreach full fibre model makes economic sense under Ofcom’s proposed regulatory framework, provided it retains the lion’s share of the market, although considerable risks remain

  • BT
  • Liberty Global
  • Ofcom
  • Openreach
  • Sky
  • TalkTalk
  • Virgin Media
Media, Telecoms 28 January 2020
Auto Trader booming in a market challenged by Brexit

Car transactions are down for the third consecutive year and consumer demand is dramatically shifting (away from diesel and towards alternative fuels), but the marketing expenditure on used cars remains robust overall.

Auto Trader has extended its leading position as the largest used car portal, so far shielded from the structural headwinds affecting its core customer group of dealerships.

Several disruptors have entered the UK automotive space in the past couple of years, but none have gained real traction in the listings space, instead opting for ancillary approaches. Tech disruption will come, but much longer term.

  • Amazon
  • Auto Trader
Media, Technology 29 January 2020
Specialist and part-time work drives recruitment boom

Employment reached an all time high in 2019 of 32.8 million people at work despite slower GDP growth in 2017-19. The tighter labour market has helped real wage growth. A two-tier jobs market has emerged, with high-grade skilled roles evolving in a wide range of service sectors, and a large pool of low-grade, part-time work  

The heterogeneous labour market has ensured that in recruitment classifieds, unlike property and auto, no digital player has achieved absolute dominance. In the layer devoted to the recruitment of professionals, served by LinkedIn, rising demand for more specialised roles has expanded the number of agencies, intensive users of digital tools to locate recruits and crack the problem of "approachability" of those already in the job  

Online job portals are rushing to improve their AI and programmatic capabilities as specialisation prompts a shift from keyword search to smart matching, leading to a boom in recruitment tech M&A. Traditional agencies such as Hays are upgrading their own data capabilities through acquisitions and partnerships with LinkedIn, Google, Salesforce and other data/tech providers 
 

  • Facebook
  • Google
  • Jobsite
  • LinkedIn
  • Microsoft
Internet, Media, Technology 29 January 2020
2020 advertising forecasts - robust growth despite the soft economy

Our all media ad forecasts predict 4-5% growth in advertising expenditure on UK media in 2020, driven by double-digit growth of pure play online, expected to reach 58% of total spend this year, up from 55% in 2019.

We expect that pure play online spend will grow by 10.9% in 2020, while TV and Press continue to fall by 3.1% and 8.6%, respectively.

Although the economic outlook for 2020 is more positive than 2019, debt-fuelled growth in spending is a continuing concern on the consumer side.

  • Amazon
  • Facebook
  • Google
Media, Technology 31 January 2020
Subscription BBC?

The Government appears set on reducing the scale and scope of the BBC by dismantling the licence fee, and in its place pushing for subscription or making payment voluntary, without any evidence of the likely impact

DTT – the UK’s largest TV platform – has no conditional access capability, and so implementation would require another costly and long-term switchover

A voluntary licence fee would inevitably lead to a huge reduction in income. If just those on income-related benefits were not to pay, the shortfall would be over £500 million – in addition to the £250 million the BBC will be funding for over-75s receiving Pension Credit

  • BBC
  • BT
  • Netflix
  • Sky
  • TalkTalk
  • Virgin Media
Media, Telecoms 4 February 2020
BT: Searching for the nadir

BT had a weak December quarter, with revenue falling 3% and EBITDA 4%, despite a recovery at Openreach, mainly driven by tough competition and regulatory hits, with operating metrics solid but not noticeably improving

These hits look set to continue, so the company’s hopes of a return to EBITDA growth in 2020/21 probably hinge on brand and service improvements actually becoming visible in operating performance

A successful full fibre roll-out would be a boon for BT in the longer term, and regulatory developments are headed in the right direction, if not quite there yet. However, its affordability without a dividend cut remains questionable in the current challenging environment

 

  • BT
  • EE
  • Openreach
Media, Telecoms 5 February 2020
Sky FY 2019 results: a solid first full year under Comcast

Despite operating in a challenging market, Sky has continued to increase revenues, with the resilient performance of its direct-to-consumer and content businesses offsetting the disappointing drop in advertising income

Across FY 2019, EBITDA was up 12.2%; profit growth driven by a significant reduction in “other” costs as large one-off effects disappear and cost-cutting continues

Extended distribution deals with Netflix and WarnerMedia will protect Sky’s content proposition for the coming future, as would the mooted integration of Disney+

  • Canal Plus
  • NBCUniversal International
  • Sky
  • Sky Deutschland
  • Sky Italia
Media, Telecoms 7 February 2020
TalkTalk: Fibrenation sorted but challenges remain

TalkTalk’s subscriber base and revenue fell again in Q3, and ARPU continued to decline despite good growth in its higher ARPU (but even higher wholesale cost) high speed base

The sale of FibreNation to CityFibre and the accompanying wholesale deal provides much needed cash and de-risking, although the migration to full fibre still brings challenges to TalkTalk given its low price focus

TalkTalk’s shorter term operational outlook is also still very challenging, with growing EBITDA in 2020/21 particularly difficult given stable/declining ARPU and the rising wholesale costs of migrating to high speed broadband

  • TalkTalk
Media, Telecoms 10 February 2020
Vodafone plods on

Vodafone’s revenue performance remains decidedly lacklustre. Italy and Spain are struggling to bounce back, Germany is still languishing, and the UK’s 0.6% service revenue growth is the highlight of the quarter

Liberty Global’s assets are disappointing both in terms of opening financials (revenues and EBITDA 8% and 12% lower than expected respectively) and outlook (now growing at half the rate at the time of deal announcement and guidance for Germany as a whole to be ‘flattish’)

Vodafone’s guidance for a pickup in revenue growth to more than 1% in Q4 is encouraging but these are very tentative steps forward in challenging times

  • Vodafone
Telecoms 11 February 2020
Consumers endorse Disney's digital transition

Recruiting 29 million subscribers in twelve weeks, Disney+ has stormed the US market. Furthermore, the two million gain achieved after the holidays and the completion of The Mandalorian, relatively high ARPU, and rising Hulu and ESPN+ subscriptions bode well

Conversely, booming (but expected) losses of direct-to-consumer platforms—due to increase as Disney+ launches in Europe in March—are undermining group profitability

But, with a total of 64 million direct subscribers Disney can now claim a size and momentum that puts it in the league of the pure digital platforms—crucially backing its stock market narrative

  • 21st Century Fox
  • Comcast
  • Walt Disney
Media, TV 12 February 2020

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