Publications

Format: Dec 2017
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Sector(s) Datesort descending
Vodafone Q2 2016/17 results - Strong in parts

Vodafone Europe has improved its mobile service revenue growth to near zero (-0.2%), and narrowed its revenue growth gap to competitors to a mere slither (0.2ppts), allowing it to return to significant EBITDA growth (3.1%)

The primary driver for this was however ‘more-for-more’ price increases, which have been followed by competitors only in part, and it is still losing contract subscriber share across its major markets (with significant local variation)

Its overall network performance statistics are flat, and customer NPS statistics are improving in some markets and worsening in others. Future outperformance is possible, but by no means guaranteed, and we believe that stabilising market share should be more of a priority than price rises

  • Vodafone
Mobile, Telecoms, Vodafone 24 November 2016
SFR and the downsides of the LBO model

France’s number two telecoms operator has suffered extensive damage since the 2014 takeover by Altice, which engaged in a slash-and-burn leveraged buy-out. Market share loss has triggered a revenue decline, with uncertainty of when this might stabilise

Increased investments will barely allow SFR to stand still in the competitive race for 4G and fibre deployment. Cash flow, while in decline, is sufficient to meet high debt payments – but rising bond yields could pressure P&L

SFR aims to appeal to subscribers through enlarged bundles of content sourced mainly from Altice investments in media, but execution seems geared to achieve VAT optimisation and augment the group’s political influence – which may be needed as massive job cuts are planned

  • Orange
  • SFR
  • Vivendi
Telecoms 25 November 2016
Vertical marketplaces overview and recruitment classified outlook

Our annual review of vertical marketplaces (classifieds) is presented in three reports, with the first providing a summary of the key macro trends, technological developments and spending outlook for the total UK classified advertising market followed by a detailed analysis of recruitment marketing; we will look at the property and auto verticals separately in two upcoming publications. Overall, we believe that the UK classified market is poised for a period of sustained innovation as the print to digital transition matures and incumbents search for new revenue streams induced by slowing digital revenue growth and consumer and client demand coupled with increasingly applicable emerging technologies. Across the three verticals we identify voice, video, virtual and augmented reality, user-generated content; and, critically, Artificial Intelligence as potentially disruptive forces. In terms of macroeconomic drivers, we observe that the Brexit referendum has had a minimal impact thus far but believe that economic uncertainty around the terms of the UK’s departure from the EU will prove a significant dampener on revenue growth in the next two years.

In recruitment, the jobs market remains in growth despite the initial shock from the referendum and the recruitment industry continues to grow its revenues, up 2% in 2016 by our estimates. However, recruitment advertising spend itself was down -1% in the first half of this year reflecting the saturation of the online market as the print to digital transition reaches its latter stages; online now accounts for 76% of recruitment spend. The pay per listings model of traditional job boards appears increasingly outdated and in the future we believe that recruitment advertising services’ main value will lie in collecting and organising job seeker data rather than charging for advertising space, a view corroborated by Microsoft’s $22.6bn acquisition of LinkedIn announced in June. Meanwhile, the online jobs aggregator Indeed continues to build its revenue share while print brands’ digital revenues fell in both 2015 and H1 2016.

Internet, Media 28 November 2016
UK digital ad forecast 2016-2018: Strong but uneven growth

UK digital advertising has enjoyed strong growth in 2016, with forecast growth of 12.7% for the full year, just scraping under the £10 billion milestone

However, this growth is highly uneven, being led by mobile display and mobile search, while desktop spend looks set to decline by over 5% year-on-year. More significantly, 90% of the growth is accruing to the two big players: Facebook and Google

Cross-device campaigns, the convergence of marketing and advertising functions, and new consumption trends all threaten our traditional categorisations of online ad spend

  • Facebook
  • Google
Internet, Media, Mobile 30 November 2016
Brexit impact on UK-EU trade in creative services

Brexit poses direct risks to exports to the Continent of regulated services, such as audiovisual (AV) media services, if the UK ceases to qualify for the Single Market

Since 1994, the EU has formalised a ‘cultural exception’ in the World Trade Organisation (WTO) and in all trade agreements aside from the European Economic Area (EEA)

Many countries have emulated the policy since, making it challenging for the UK’s AV cluster to gain significant additional market access from future bilateral trade deals

Brexit, Media, Public Policy, Technology, Telecoms 2 December 2016
Property classified marketplace

This is the second of three reports in our annual review of vertical marketplaces (classifieds), focused on property, and follows Vertical marketplaces overview and recruitment classified outlook [2016-116]

Stamp duty reforms and the impact of the Brexit referendum triggered a -10% fall in UK residential property sales between April and October 2016 and the consensus among estate agents and commentators is that the property slowdown will continue into 2016/17 as buyer confidence recedes. As a result, we expect UK property classified advertising to slip into decline in 2016/17 driven by losses in print, while online advertising growth will slow to low single digits

In the online market, while Rightmove continues to deliver outstanding financial results from its simple listings model, we believe that a new phase of innovation is imminent. Consumers are demanding enhanced services through data and personalisation, and there is clear potential for virtual/augmented reality and artificial intelligence to disrupt the market in the longer term

  • Rightmove
Internet, Media 5 December 2016
European digital news models

Pay access now predominates in print-rooted national digital news across Europe, with meters the most popular model. Reliance on digital advertising is retreating. Best of class Continental publishers have roughly stabilised revenue, and the risk of print ad decline acceleration looms – as in the UK

Digital is still typically below 20% of revenue as online advertising CPMs decrease and newsstand buyers are reluctant to migrate to digital subscriptions – on current trends digital revenues will be insufficient to sustain a full-scale newsroom

Emerging innovations include aggregation, bundling (with broadcast, music, telecoms), and youth-skewed spin offs, but execution is uneven. Profitable native digital news sites provide templates for focused coverage at a fraction of traditional newspapers’ costs

  • SFR
Non-UK Media, Internet, Media 6 December 2016
Auto classified marketplace

This is the third and final report in our annual review of vertical marketplaces (classifieds), focused on used cars, and follows Vertical marketplaces overview and recruitment outlook [2016-116] and Property classified marketplace [2016-119]. Auto Trader continues to dominate online auto listings, accounting for 85% of UK revenues in 2015 by our estimates as total UK online auto spend increased 13%.  We believe that growth will slow to -7% this year and low single digits in 2017/18 as Brexit bites and consumer confidence retreats, although used and new car sales have so far remained buoyant since the vote. In common with the other classified verticals we see a period of sustained innovation on the horizon which will challenge the existing market leaders; data provision rather than audience listings will likely become the main source of value to advertisers while further out the advent of autonomous vehicles promises to disrupt the established structure of the entire auto industry.

Internet, Media 9 December 2016
Advertising ups and downs in 2017

Brexit has not noticeably depressed advertising spend in 2016, as consumer spend is buoyant, fueled by borrowing and lower savings. Yet, businesses are being cautious as uncertainty weighs on the future rules of trade with the EU

We forecast total advertising spend to rise by 0.6% at constant prices in 2017, almost entirely due to digital growth, which is expanding the total advertising market. Its share has soared from 1% in 2000 and looks likely to hit 50% in 2017

Up to now digital growth has always been at the expense of print and not television, but this could just be changing as mobile increasingly holds centre stage for the consumer

 

Brexit, Media 12 December 2016
Internet Trends - Consumer behaviours driving market trends

As smartphone ownership nears saturation in almost all consumer groups, the base for the UK digital economy is widening: media consumption continues to move to connected devices and use of consumer services on mobile grows

Ecommerce is now responsible for 75% of retail growth, steady even during periods of decline for the overall market

Google and Facebook take up almost 90% of gross online advertising growth this year, and the ecommerce and mobile service markets show early signs of platform concentration

  • Amazon
  • Facebook
  • Google
Internet, Media, Mobile, Technology 13 December 2016
TalkTalk Group Q2 2016/17 results: Growing profits, slowing revenue

TalkTalk’s broadband subscriber decline has re-accelerated, with retail weaker than wholesale, and its consumer revenue is declining at 6%. This is partly due to price change timings, partly due to last year’s cyber-attack, but also partly due to underlying weak retail broadband subscriber growth

EBITDA did grow strongly, although this was in part due to less subscriber growth. The new pricing plans will likely drive more short term revenue weakness, but could potentially drive lower churn in the medium term, and they have renewed TalkTalk’s price competitiveness, particularly on high speed products

Longer term, we still think that the company will find it challenging to stabilise its retail broadband base in the face of a slowing market and Virgin Media’s network extension, at least without significantly upping its marketing spend and sacrificing some margin

  • TalkTalk
Fixed Line, Telecoms, UK Media 16 December 2016
UK broadband, telephony and pay TV trends Q3 2016: Peak growth?

UK residential communications market revenue growth accelerated to 5.8% in Q3, from 5.0% in the previous quarter, helped by an overlapping price rise at BT, and supported by firm pricing and accelerating high speed adoption elsewhere

In contrast, volume growth in the core three products continues to slow, with little sign that this will ever re-accelerate. In the longer term we cannot see ARPU growth acceleration continuing to fully compensate, and market revenue growth might also have peaked

With Virgin Media’s continuing network extension and improving pay TV service putting pressure on the other operators, Sky and TalkTalk are protecting themselves by aggressively marketing high speed broadband. Correspondingly, this quarter marks the first time that Openreach’s high speed net adds were mostly derived outside of BT’s retail divisions

  • BT
  • Sky
  • TalkTalk
  • Virgin Media
Fixed Line, Telecoms, UK Media 16 December 2016
European mobile in Q3 2016: Nearly growing

European mobile service revenue growth recovered to nearly reach positive growth in Q3, improving a whole percentage point over the previous quarter to -0.2%

The main driver of the improvement was continued ‘more for more’ price increases combined with a lack of price wars at the lower end, although the current detente does not feel very stable. Furthermore, the pressure on growth from the general trend towards SIM-only and the consequent lower contract revenue looks unlikely to alter

Revenue growth of around zero as almost achieved this quarter is sufficient for the operators to grow the bottom line, but not to transform their network coverage in the style envisaged by 5G enthusiasts – more substantial growth is needed to cover the costs of such a step-change

  • EE
  • France Telecom
  • Hutchison 3G
  • Iliad
  • O2
  • Orange
  • SFR
  • Sky
  • Telecom Italia
  • Telefonica
  • Vodafone
Non-UK Telecoms, Mobile, Telecoms 20 December 2016
UK mobile market Q3 2016: Growth recovers, but challenges await

UK mobile service revenue growth improved in Q3 to -0.8% from -1.7% in the previous quarter, a welcome turnaround after three quarters of declining growth. Pricing remains firm, data volume growth remains robust, and some of the one-off factors affecting the previous quarter have dropped out

Sky Mobile soft-launched at the end of 2016, and it is taking an aggressive approach with a very deep MVNO technical model with substantial fixed costs, a high advertising budget and ambitious internal subscriber targets. To date the fixed MVNOs have not had a substantial impact on the MNOs, targeting a customer base that is non-core, but with SIM-only on the rise this may change

Looking at recently released network performance statistics, the impact of spectrum disparities is clear, with EE both able to offer faster speeds nationwide due to its large blocks of 4G spectrum, and offer much faster speeds in London. EE also has a lead in geographic coverage, and is planning to push its coverage much further, creating a challenge for the other operators to keep up

  • EE
  • Hutchison 3G
  • Liberty Global
  • O2
  • Ofcom
  • Sky
  • TalkTalk
  • Telefonica
  • Virgin Media
  • Vodafone
Mobile, Telecoms, UK Media, Vodafone 20 December 2016
21st Century Fox and Sky seeking merger clearance

21st Century Fox and Sky plan to notify their proposed merger to the European Commission, perhaps by March, and obtain clearance on competition grounds, as rapidly as in 2010.

The merger could also face, along the lines of 2010, a separate regulatory process in the UK on media plurality grounds, by a decision of Secretary of State Karen Bradley.

If the UK process happens, Ofcom will provide its advice on the merger’s impact on news and current affairs, whose consumption has shifted massively online since 2010.

  • 21st Century Fox
  • Sky
  • Sky Deutschland
  • Sky Italia
Media, TV 21 December 2016
TV set viewing trends: linear remains vital

Timeshift viewing on the TV set has doubled since 2010, mainly due to PVR adoption. This has compensated for about 40% of the decline in live viewing, which has fallen by 19% per person on average

Timeshifting habits are widely spread across all age groups. They are proportionately higher for the young, who watch much less live TV, but are still substantial among over-55s, whose total viewing has hardly changed since 2010

Large genre variations in the volume of timeshift viewing (dramas high, live events low), and the fact that this still occurs very soon after the live broadcast, underlines the strength of the linear schedule. And, despite widespread initial concerns that timeshift viewers would fast-forward through all ads, nearly 50% of timeshifted commercials are viewed

Media, TV, UK Media 10 January 2017
Music Subscription Streaming

Streaming is now mainstream and we predict 113% growth in expenditure on subscriptions for 2015-18 in the top four markets (US, UK, Germany and France)

Free vs paid-for streaming is the central question for the music ecosystem: free yields fractions of pennies, making subscription the only credible business model

Market leader Spotify is facing competition from tech giants Amazon, Apple and Google, with deep pockets, for whom content is a pawn in a larger game

  • Amazon
  • Apple
  • Google
  • Spotify
  • Vivendi
  • YouTube
Media, Music and Radio, Technology 13 January 2017
Netflix at 10: still growing, still spending

Netflix celebrated the 10-year anniversary of its streaming service by posting its largest quarterly rate of subscriber growth, adding just over 7m new subscribers in Q4 2016, smashing its own forecast for the period of 5.2m

5.12m of the new subscribers were for its international services, attributed to acceptance of its growing suite of English language original programs. But growth is just as likely related to the bolstering of overseas offerings with acquired programming, after launching worldwide with relatively small libraries

While re-establishing confidence after a period of doubt when missing targets in Q2, challenges await; most notably concerns around net neutrality, diversifying content genres, and the open question as to how effectively original programming will be able to carry the service

  • Amazon
  • Netflix
Media, TV 27 January 2017
BT Q3 2016/17 results: Strong core, let down elsewhere

BT had a solid enough quarter, with revenue and EBITDA growth dipping due to pre-warned temporary factors, consumer continuing to outgrow business, and very solid operating trends evident, especially in high speed broadband and mobile

This has of course been entirely overshadowed by the profit warning, with prospective weaknesses in UK public sector and international corporate of far more concern than the contained, albeit surprising, accounting irregularities in Italy

BT has a large share of revenue and a much smaller share of profit from corporate/government data network/IT services, which are erratic in nature and arguably in long term decline in their current form, and without major changes they will continue to be so

  • BT
  • EE
Fixed Line, Non-UK Media, Non-UK Telecoms, Media, Mobile, Non UK Media, Technology, Telecoms, TV, UK Media 1 February 2017
Sky on track - H1 2017 results

Sky H1 2017 results are broadly in line with company guidance on revenues, costs and synergies given at the 2016 Investor Day 

The core focus since the formation of European Sky in November 2014 has been investment for growth in all sectors of the business (i.e. retail products, content offers and customer service), an approach that is beginning to bear fruit. Sky Italy had a notably “excellent” start to the year

Most eye-catching in the results release was the planned launch in fiscal 2018 of an IP alternative to Sky’s DTH service. That speaks volumes about the know-how Sky has accumulated over the last ten years in meeting customer demands and building customer relationships

  • Sky
Media, Telecoms, TV 3 February 2017

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