France Télécom’s Orange TV premium strategy presents an interesting example of diversification into low cost ‘light’ pay-TV offers by an incumbent telecoms operator. Orange Sport and Orange Cinéma Séries are offered exclusively to Orange's 2.55 million TV subscribers, and five quarters after launch, adoption is 20%. This report draws several lessons on this type of venture for other incumbent operators
Annual market growth is dropping in line with our predictions over the past two years, despite some significant quarterly blips.We continue to project growth in 2009 to be significant, but much lower than in the past, with net additions of 1 million
We expect annual net additions in 2010 to drop by another 20% to 800,000 as the market becomes ever more saturated
We project 19.8 million broadband households by 2014 and have slightly increased our projections from 2010 to take into account the likely impact of higher growth in the number of households as recently predicted by the Office for National Statistics (ONS)
Three years into its pay-TV investigation, we expect Ofcom to impose a wholesale must-offer obligation with regulated prices on the Sky premium films and sports channels in its final statement scheduled for Q1 2010
The WMO could take effect by the middle of 2010. It appears unlikely that Sky will be granted a stay of implementation whilst its appeals against the lawfulness and substance of the WMO remedy are being heard
Assuming the WMO proceeds, its impact on the pay-TV market is likely to be small in the first three to five years, but could become significant in the long-term; the core issue throughout being the rate-card prices set by the regulator, Ofcom
VMed’s Q3 results were strong, with the impact of the May price increases feeding through almost directly into growth in revenue and cash flow. Cable volume performance was solid, given difficult market conditions and the focus on higher value customers
VMed’s plans for HD are becoming increasingly important. In this regard, the outcome of Ofcom’s pay-TV investigation could prove crucial
The cost reduction programme is delivering ahead of expectations, and we remain optimistic that revenue growth will continue, in combination with reductions in operating costs, to generate further significant growth in cash flow
Latest fiscal Q1 2010 results show continuation of the strong subscriber and revenue growth trends, but as Sky forges ahead of its rival pay-TV operators so attention is turning to competition issues
It is still unclear whether Ofcom will succeed in introducing a wholesale ‘must offer’ remedy with regulated pricing for Sky’s premium subscription films and sports channels; a proposal that Sky vehemently contests but, if put into place during 2010, this could have a significant influence over the longer term structure of the UK pay-TV market
Results for the telecoms business continued to improve, albeit on a more modest scale than in Q4 2009, with the cost base beginning to show signs of greater stability
Just-launched Sky Songs offers a ‘new’ online music model, combining on- demand streaming with credit towards DRM-free downloads, for a single monthly payment
Sky Songs combines the best features of Spotify and iTunes, with lower average per track prices for in-bundle downloads, which will appeal to the music purchaser, and drive industry revenues provided regular use is made of the service
Sky Songs is backed by the power of Sky’s brand, serving the UK’s most entertainment-conscious clientele, with initial promotions targeting Sky’s 2.2 million broadband customers
This report looks at the UK broadband and telephony market up to Q2 2009. The key trend is that the steep reduction in UK broadband net additions continued in Q2 2009, to 176,100
According to recent speculation, Sky stands to benefit materially in the short-term from the replacement of Setanta by ESPN, but could suffer from rights inflation and worse in the longer term should ESPN become really successful
ESPN’s commitment to a pure wholesale channel distribution model across all platforms and lower outlay on rights gives a real chance of building a viable business where Setanta failed
But, profits will take time to build and there is little to suggest that Sky will either materially benefit from having ESPN rather than Setanta as a customer, or that ESPN will emerge as a serious threat to Sky’s own core premium sports business in the next three to four years
H3G’s H1 2009 results showed some improvement on revenue growth and profitability on a very weak H2 2008, but it is still growing very slowly while barely EBITDA positive
The company has at last admitted that it will not be EBIT positive in 2009, and without some major changes we doubt it ever will be
For the UK business, there are a number of factors which may turn in its favour over the coming two years, allowing a more concerted marketing push to scale; for Italy and the smaller European operation, consolidation appears the only answer
VMed’s Q2 results were again mixed but, on balance, encouraging, with the impact of the May price increases feeding through into revenue growth
Cable volume performance was poor but, with the exception of broadband, no worse than expected, and is not expected to deteriorate further relative to the market
We remain optimistic that management will succeed in combining revenue growth with reductions in operating costs to generate sustained growth in cash flow from autumn 2009