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Enders Analysis provides a subscription research service covering the media, entertainment, mobile and fixed telecommunications industries in Europe, with a special focus on new technologies and media.

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Rigorous Fearless Independent

Sky posted understandably weak results for Q1, amid the ongoing COVID-19 crisis. Revenue fell by 3.7% year-on-year, with most sports subscriptions on pause and advertising markets in shock.

The company has guided to a 60% fall in EBITDA over the next two quarters, as it bears the extra costs of a very condensed sporting schedule, but much will depend on what level of rebate it negotiates from the rightsowners for the disruption.

On screen, Sky faces similar production issues to other broadcasters, but it has continued to enhance its platform gatekeeper role and strong content offering, most recently by integrating Disney+.

BT’s March quarter appeared to have been going reasonably well until COVID-19 hit, with full year guidance still being broadly met, but the new financial year will be hit harder, with BT Sport, SME and new fibre connection revenue particularly vulnerable.

BT’s full fibre roll-out has been temporarily slowed by COVID-19, but it is accelerating its ambitions regardless increasing both its 12-month (4.0m to 4.5m) and longer term (15m to 20m) coverage targets.

BT is suspending and then rebasing its dividend, in part to cover the above costs. While we regard BT’s fibre investment as a good one, investors and analysts alike have been frustrated by a lack of clear multi-year guidance of the benefits, perhaps as a result of BT not wanting to reveal its negotiating hand to the regulator, government and retail partners.

Francois said “This is recognition for news publishers that the commercial model doesn’t really make sense. They have to go with a begging bowl. With print ads collapsing, which is probably their last remaining significant revenue stream, they have to make the move from commercial to non-profit.”

He added "Rich people will simply have the opportunity to keep it afloat tax-free,” 

“The reason for this generosity is simple: No government, left or right, wants to see Libération or L’Humanité dying under their watch. That’s why the firehose of subsidies never stopped.” 

Journalism is on the precipice with more than £1 billion likely to fall off the industry’s topline. Several years of projected structural revenue decline in advertising and circulation have occurred in just the past few weeks of the coronavirus pandemic, with no letup in sight.

The UK’s rich heritage of independent journalism is at risk, with responses by Government and ‘big tech’ multinationals welcomed but ultimately inadequate. We make two further recommendations for engagement in this report.

Journalism enterprises from the small, local and specialist outfits through to national household brands will either fail or remain on a path to future failure.

O2’s merger with Virgin Media seems more of a marriage of convenience than a determined pursuit of synergy benefits. With the owners effectively selling their stakes, the combination will be well-advised to exercise caution in any convergence strategy that they pursue.

O2’s results this quarter appear to be fairly decent with all metrics ticking up slightly, although caution is advised in interpretation and pressure on ARPU has not eased.

With the mobile sector reasonably well insulated from COVID-19 and O2 likely to fare better than most in out-of-contract discounts, the short-term outlook is relatively robust, but competitive and macroeconomic vulnerabilities remain on the horizon.

James said "This is not likely to be driven by the pursuit of revenue synergies as dis-synergies are more likely if the brands are merged."

"While fairly modest in the context of the companies’ size, this still looks right at the top end of reasonableness, and perhaps includes cost savings, which could have been achieved through cost-efficiency programs individually without the need for a merger. Nonetheless, a deal of the style reported is probably worth pursuing even for a portion of the synergies touted given the challenging fundamentals of the sector — in a very mature market, even tangential synergies are worth pursuing."