Publications

A newspaper pay wall subscriber is worth only a quarter to a third of a print buyer: even if every single print buyer is successfully converted to the pay wall, newspapers will still face a basic problem of scale

Pay walls will not be able to compensate for lower revenue per reader by expanding the audience for paid news, due to the long term decline of circulation, free online news, 24-hour broadcast news and free-sheets 

Future change will be radical: publishers may need to consider producing a newspaper its loyal readers recognise and value with just 200 rather than 500 journalists

The bounce back in TV NAR (Net Advertising Revenue) now looks set to continue into Q4, resulting in full year- on-year growth of about 12.5%

The bounce back has more than reversed the -11% fall in 2009, although it still leaves TV NAR in 2010 about -5% below pre-recessionary levels in 2007 (nominal prices). Meanwhile, persistent worries about the economy and the impact of government debt reduction measures suggest flat growth in 2011

Much depends in 2012 on the outcome of Ofcom’s review of the airtime minutage quota and distribution rules, where its own commissioned econometric analysis suggests that harmonisation efforts leading to increases in airtime supply could cause large reductions in TV NAR

After Part One: Overview and Recruitment, our two part annual report on UK classifieds continues with Part Two: Property, Auto (used) and Directories. As with recruitment, a step change downwards has occurred in the underlying volumes of transactions driving classifieds in property, autos and directories, most dramatically in the UK housing market, bringing down with it the estate agency spend on advertising that is the backbone of the local/regional newspaper industry.

Our two part annual report on UK classifieds starts with Part One: Overview and Recruitment, and follows with Part Two: Property, Auto (used) and Directories. The migration of classifieds from print media to online media accelerated during the recession, reducing classifieds revenues by 13.3% year-on-year to £5 billion in 2009, down to one third of UK advertising spend. Despite the economic recovery, we see no prospect of a ‘bounce back’ due to historically low volumes of activity in recruitment and property, along with the deflationary effect of the print-to-digital migration.

This report covers internet advertising and e-commerce in the ‘big 3’ European markets of the UK, Germany and France. Together, we estimate they generated €8.9 billion in online ads in 2009 or 65% of the continent’s total internet advertising. We provide detail on search and e-commerce, display and classifieds.

Google’s UK results and other key indicators for the first half of the year confirm that online advertising increased in line with our overall forecast for 2010

We anticipate that deteriorating consumer confidence in H2 2010 will lead to deceleration of advertising growth, including the internet – confirmed by early anecdotal feedback from agencies and ad networks

Our revised forecast for Google’s UK ad revenue is 15% YoY growth in 2010 and 11% YoY growth for UK internet ad spend to £3,800 million

The bounce back in H1 2010 advertising revenues (18% up over H1 2009), combined with extra cost savings, turned last year’s £72 million loss into this year’s £71 million profit; but could not disguise the need for transformation of a business overly dependent on an advertising model in long-term structural decline

The management’s five year goal of reducing the advertising revenue share (now 74%) to 50% echoes previous targets and the ability of the new team to deliver the goal will depend first and foremost on a revitalised ITV content production business

The agreement with Sky to launch HD versions of ITV2, ITV3 and ITV4 to Sky+ HD subscribers marks ITV’s first return to pay-TV since the collapse of the ITV Digital venture in 2002. This should not be seen as an about turn in ITV’s commitment to free-to-air broadcasting, but rather as a one off win-win opportunity for ITV and Sky

H3G Group’s reported results claimed strong growth and rapidly improving profitability, but, taking out the effect of an accounting change, an acquisition and some one off income, underlying revenue was flat and profitability improved only marginally

The parent company is still guiding to positive EBIT from the H3G group for the full 2010 year, but this will require either further creative accounting or very strictly controlled spending on subscriber acquisition, at the expense of future revenue growth

H3G UK’s revenue fell 9% in the half, although profitability improved with very weak contract net adds probably caused by a restricted SAC budget. With demand for smartphones surging H3G UK is in a potentially strong position, but without a substantial marketing and SAC budget it cannot take advantage

In the attached short presentation we show our analysis of trends in UK broadband and telephony for the quarter to June 2010, based on the published results of the major service providers. We include our own estimates where reported data is incomplete.

Highlights in the quarter included a bounce in quarterly broadband market net additions sufficient to cause year-on-year subscriber growth to accelerate by half a percentage point, and the launch of fixed telephony by O2.

Strong FY 2010 adjusted revenue growth of 11% was powered by a 15% rise in subscription revenues, reflecting a mixture of solid subscriber growth in spite of the recession and burgeoning multi-product sales, with HD subscriptions registering a net increase of 1.63 million to end the year at 2.94 million and the telecoms sector breaking into operating profit in Q4

Firm cost control and streamlining of manufacturing and subscriber management expenses now make Sky’s 25% TV operating margin target look very achievable, but also leave it room to increase spend on programming substantially within the guidance limits of pegging increases to the rate of revenue growth

Overshadowing the results is News Corp’s proposal to purchase the 60.9% of BSkyB shares that it does not already own, subject to regulatory review. Assuming it goes ahead, News Corp will have a larger market share in the UK across media (TV, newspapers and books) than any other company in a major market