After a quarter coloured by big, returning series Netflix now has just shy of 104 million subscribers worldwide, with, for the first time, the majority living outside the US
Content expenditure continues to dazzle with $4.2 billion spent in the first half of 2017. Negative free cash flow looks set to hit $2.5 billion for the year, with large upfront payments for self-produced and commissioned content coupling with rights acquisition expenditure to create a library of programmes that necessitates continual subscriber growth
Current international growth is small considering the magnitude of the opportunity, revealing the difficulty of creating sizeable customer bases outside of the West, where competitors are cheaper, US programming less desirable and internet access comparatively limited
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European subscription and pay-TV monitor
24 July 2017Across Europe, markets are becoming more competitive. Incumbent pay-TV paltforms (e.g. Sky or Canal+) face increasing threats from both internet-based services (e.g. Netflix and Amazon), and telecoms operators
Telecoms providers are proving the most potent challengers as they enter the premium football rights market to create attractive triple and quad play bundles – examples include BT, SFR and Telefónica. The latter is now the main pay-TV operator in Spain whereas France’s Canal+ has entered into a strategic alliance with Orange
Across the top five markets (UK, France, Germany, Spain, and Italy), Sky remains the leading operator with an estimated 21.5m video subscribers, twice as many as Netflix
Channel 4 set for the future: 2016 annual report
24 July 20172016 has seen Channel 4 break new records in growing revenues and investing in content origination, whilst making further progress in delivering its remit and maintaining audience share for its main channel
However, the second half of 2016 and early months of this year promise a significantly tougher 2017 as the economic and TV advertising climate has worsened and the future is clouded with uncertainties
Channel 4 nonetheless starts from a relatively strong position financially and we expect it to be well capable of sustaining its remit under the leadership of its new CEO Alex Mahon, though much hinges on the outcome of the Government consultation on relocation
TalkTalk sustained positive broadband net adds in the June quarter, adding 20k to its base, largely driven by reduced churn, which was largely driven by re-contracting a large proportion of existing customers onto its new cheaper bundles
Unfortunately, this had a negative effect on revenue growth, with Group revenue growth (ex-carrier) dropping to -3.2%, as the new cheaper bundle adoption diluted ARPU, but the company remains confident that revenue growth will turn positive for the full financial year as the ARPU dilution effect annualises out
The company recently announced a price rise due in August of around 5-6% for customers not on its new cheaper bundles (around 38% of its total broadband base), which will help with the ARPU turnaround, but may make maintaining positive broadband net adds more challenging
Financial Times
17 July 2017Claire Enders was quoted in an article on Dame Carolyn McCall, who will take charge of ITV next January. Although her appointment was widely welcomed by analysts and media executives, the boss of the no-frills airline will nevertheless need to steer the UK’s biggest commercial broadcaster through some potentially turbulent times. Under former chief executive Adam Crozier, ITV reduced its reliance on the cyclical advertising market by expanding its production division, ITV Studios, to become a major player in the international content business. But advertising still made up 47 per cent of ITV’s revenues of £3bn in 2016, and the problem for Dame Carolyn is that she is taking over just as the ad market heads into its most severe downturn since the financial crisis of 2009. Claire said “TV revenue is heading into the unknown, and there’s no end in sight to the decline of the core TV business”.
SME marketing: a local and global battleground
17 July 2017Accelerating print advertising declines in 2016 are placing pressure on local newspaper publishers to deliver faster online growth
However, digital growth is being supported yet compressed by Google and Facebook; we estimate SME expenditure on Google is roughly 2x the local press, and we expect SME spend with Facebook to match local newspaper advertising revenues in two to three years
Publishers need to grow consumer registrations and subscriptions, digital display and also digital marketing services, in partnerships with the tech giants – but first they have to convince consumers they have relevant use-cases that global platforms cannot replicate
Financial Times
12 July 2017Douglas McCabe was quoted in an article on Bertelsmann announcement to expand its stake in Penguin Random House, cementing the German media conglomerate’s position as the dominant force in global publishing. The billion-dollar deal with Pearson gives Bertelsmann overall control of a company that is already a behemoth in publishing. The transaction should strengthen PRH at a time when publishers are facing pressure from Amazon, which dominates the ebook market. Douglas said “it’s important to have serious clout if you’re trying to negotiate with giants like Amazon, and that’s part of the recipe”, adding that, “Bertelsmann is adapting to the digital world, but they’re also taking the view that the business of physical books will remain robust, for the near future at least”.
The US scripted content boom is spilling over into Europe: Free-to-air TV drama ratings have proven resilient but as costs and audience expectations have risen budgets are under pressure, necessitating flexible co-financing arrangements with American broadcasters, and Netflix and Amazon. Pay channels have boosted output—with uneven results
Long-term IP control is a key factor behind independent production consolidation, led by broadcasters seeking a secure stream of content and diversification away from advertising
Notable developments include the new wave of Berlin-based, internationally-financed series, the rise of domestic French content and Sky Italia’s edgy originals, Telefónica’s giant leap into Spanish dramas, and the continuation of Britain as an export powerhouse
Retransmission fees back on the burner
6 July 2017The debate over the entitlement of free-to-air PSBs to retransmission fees from pay-TV platforms has simmered for the last few years, yet promises to boil over once the Digital Economy Act 2017 (DEA 2017) comes into force; as expected in late July/early August
The repeal of section 73 of the Copyright Designs and Patents Act 1988 (CDPA 1988) has removed a barrier to negotiations between the PSBs and the cable operator Virgin Media over retransmission fees, seen by some as the thin end of a wedge for obtaining such fees across all pay-TV platforms
However, pressing for retransmission fees could have the opposite effect of what the PSBs – in particular the commercial PSBs – wish for, threatening as it does to undermine the principles of universality and free access at the point of use, so long the bedrock of public service broadcasting in the UK