UK residential communications market revenue growth was broadly unchanged at 5% in Q2, despite volume growth continuing to slow across all products, with pricing and fibre adoption helping to boost ARPU

The combination of weakening market growth and an accelerating Virgin Media (on the back of its Project Lightning network extension) is putting pressure on the other operators, all of which were weak in subscriber terms

These factors bode for a competitive Q3 with the major operators offering very aggressive promotions in the battle for subscribers at the start of the football season. Underlying pricing though looks firm with price rises already implemented, scheduled or expected in Q4

Cord-cutting has become a major headache for US pay-TV operators in the last three years, while cable network channels face further erosion due to cord-shaving and we now see a rapidly growing population of cord-nevering households that have never taken a pay-TV subscription  

Should we expect it to be only a matter of time for the UK to follow the US? The short answer is no, due to major differences in the pay-TV market infrastructures of the two countries, which leave the UK much less exposed

However, downward pressures from the online space do exist in both countries, while the big cord-cutting-shaving-nevering threat we now see in the UK has most of all to do with the chill Brexit winds on the economy

FY 2016 has been an excellent year, with all three Sky markets showing improved performance as Sky delivered 7% revenue growth (5% after adjusting for 2016 being a 53-week year) and 12% increase in operating profit

The success reflects Sky’s commitment to product and service innovation and diversification in an increasingly fragmented marketplace combined with tight control of back office costs and focus on synergies

As a measure of its success, Sky has set new cost synergy targets of £400 million annual run-rate by FY 2020 and is aiming for continuing middle to high single digit growth in revenues, which should let it comfortably absorb the rising costs of Premier League and Bundesliga live televised rights under the next contracts

Video content is crudely defined. If something is not very short (<10 minutes) then it tends to be considered long-form. But there is a middle ground - one which displays a distinctive combination of characteristics in terms of production, broadcasting and viewing

Mid-form video (between 10 and 20 minutes) has the ability to carry the narrative arcs normally associated with long-form programming, whilst also retaining the snackable and shareable attributes of short-form

The footprint of mid-form is, so far, small. However, it is growing, as its unique qualities, such as excellent ad completion, become more readily recognised

European service revenue growth improved in aggregate but with traction noticeably gradual and fragile, and growth remains negative. The future of this fragile recovery is highly uncertain in the wake of a vote to take the UK out of the EU. Most economists have budgeted a slowdown in UK GDP growth, revising 2017 expectations from around 2% to near zero or below. The IMF expect 1.3% growth in 2017 (-1ppt revision) based on “limited” Brexit impact with implied potential for further downward revisions, and it has made more modest cuts to forecasts for other European markets

Mobile service revenues are susceptible to the slowdown but we believe there to be sources of resilience in the revenue stream that would temper the impact including much reduced prepay share of the base, heavily eroded ARPU differential of contract users over prepay and contract tariff value for money, bundling trends, high smartphone penetration (>64%) and data attachment rates (>75%), and 4G coverage and penetration

Following a failed acquisition of O2 in the UK, H3G have turned focus to the proposed JV merger with Wind in Italy where offered remedies are rumoured to have been found acceptable although official confirmation (pending) is only due by 8 September. These include furnishing Iliad as a replacement fourth market entrant with uncertain consequences for the Italian market

The DCMS has published the government’s response to its consultation on the balance of payments between television platforms and public service broadcasters, the so-called issue of retransmission fees

One sure outcome is that Section 73 of the Copyright, Designs and Patent Act (CPDA) 1988, which has hitherto protected cable operators (i.e. Virgin Media) from having to pay retransmission fees, is outmoded and will go

But, we now have a disconnect. The government has stated unequivocally that it expects the continuation of no net carriage payments between the licensed PSBs and the platform operators and may consider legislative changes to ensure this. And yet ITV sees the government response as a welcome first step towards their introduction

UK mobile service revenue growth marginally improved in Q1, to 0.5% from 0.3% in the previous quarter, with the market now having been stuck at a modest but positive growth level for two full years. The improvement was driven by contract ARPU growth improvements, across all of the operators, partially mitigated by a drop in contract subscriber volume growth, perhaps influenced by a weak market for new handsets

Looking forward, the competitive outlook is very uncertain; while EE is looking to increase its network lead, whether it wishes to use this to boost share or pricing is unclear, O2’s future owners may have different strategic priorities to the status quo, H3G will likely take innovative approaches, which are tautologically hard to predict, and Vodafone UK remains Vodafone’s only large European market without a scale position in consumer broadband, a situation it is likely to want to rectify in due course

While before the Brexit referendum, we would have concluded that the outlook for market-wide revenue growth was reasonably positive in spite of this, with ever-strong data volume growth contrasting with constrained spectrum supply, the extra economic uncertainty due to the referendum result puts this at least partly in doubt. The mobile market is likely to be relatively insensitive to macroeconomic conditions given its increasingly essential nature, but there is some sensitivity, particularly if population growth slows or reverses. Our base case assumption is a dip in growth of 1-2ppts in 2017 as a consequence of Brexit

Cinema, TV and VOD services share in the same ratings regime in the UK, giving parents confidence they can discern content unsuitable for their children.

Risks to children of being exposed to unsuitable content and advertising multiply on the 'open' internet. 

Parental controls supplied by ISPs are key to filtering content and sites, although a unified approach is better 

Our survey results highlighted disconnects between operator ambition and consumer perceptions across customer loyalty, network performance and quad play, with noteworthy implications for future competitive performance. O2 in particular benefited from strong branding which yielded network confidence and loyalty above that of top network investors, EE and Vodafone

Convergence prospects continue to look supplier driven with consumers reporting little interest in quad play packages even when offered with significant bundle discounts. Recent advertising campaigns have sought to change consumer perceptions of a dichotomy in mobile and fixed broadband provisioning which, if successful, will be to the benefit of all quad play hopefuls

The mobile usage disparities between 16-24 year olds and 55+ users are stark, for instance near 100% of mobile users aged 16-24 own a smartphone while for those 55+, this falls to just over half. The implications are strong for service providers in all manner of industries who are seeing new (younger) users come to market that bear little resemblance to the traditional users around whom much of the operational model is typically built

TV viewing has one reliable, long term trend: programme genres are watched by consumers at predictable life stages and ages

At a high level, there has been little manipulation of the balance of genres being broadcast. But amongst the sub-genres, editorial optimisation has resulted in an uptick in actual viewing

As the core viewing age of linear television rises, there is an opportunity for broadcasters to leverage this to create the most desirable schedule for their available audience by daypart; with genres that transcend demographics when younger viewers tune in