The BSkyB change of strategy announced last August by James Murdoch has claimed its first victim according to this report: the company's own original target of 30% operating margin by FY 2006/07. That leaves the company with just two of its core targets: £400 ARPU and 8 million subscribers by the end of 2005. Meanwhile, the profit target has been replaced by the long-term growth target of 10 million Sky Digital subs by 2010, over 25% with Sky+ boxes and more than 30% with multiroom subs.

Weak Q2 commercial viewing figures fuelled stories that ITV1 NAR could be approximately £100 million lower in 2005 unless audience share rallied in H2 2004. This was due to the Contracts Rights Renewal (CRR) remedy, imposed by the Competition Commission as a condition for the merger of the Carlton and Granada sales houses to create ITV Sales, which now controls over 50% of television advertising sales.

Ofcom produced a tough and rigorous document on ITV licence fee renewals. Although the paper is dense and difficult to understand, we think it is bad news for ITV. The likely licence fee settlement is going to be higher than commentators might have expected six months ago. The prime reasons are Ofcom’s proposed move to assessing the ‘digital dividend’ on the basis of digital viewing, not households and, second, taxing the benefits of the lower costs of the merged ITV business. The first of these is the more important financially since only about 57% of ITV viewing in digital houses is of the digital ITV service.

We have long been sceptical of claims that music download stores like iTunes, combined with hardball legal tactics against pirates, would rapidly turn around the fortunes of the music industry. The wildly successful iPod has driven the growth of digital music downloads, and is expanding the population of music downloaders that pay for music - but not forced a change of heart by file sharers! Music download sales are expanding but not fast enough to balance the decline in physical formats. Globally, we project sales of music downloads of $3.5 billion by 2010, about 10% of the total music market.

Sky's continued excellent performance has attracted favourable comment in the weeks since its half yearly results. But much of the commentary missed some critical points. The analysts did not question Sky's assertions that it was successfully targeting high value customers. Actually, the last half-year saw a fall in the numbers taking the top-priced package. Similarly, few commentators noticed that despite the favourable comments in the results announcement, interactive revenues actually fell last quarter. The steepest rate of decline was seen in betting, which a year ago was going to be application that formed the core of Sky's interactive ARPU. Similarly nobody seemed to have noticed that Sky's overall share of TV viewing declined in the quarter, despite the addition of two hundred thousand new subscribers.

According to the Financial Times (27/03/2002), the European Commission is planning ‘to clamp down on the cost of calling mobiles’ and issue ‘tough new rules’, which ‘would make it easier for national telecoms regulators to force mobile phone companies to reduce excessive call termination charges’. According to our research, this is an exaggerated assessment: the likeliest outcome would be a Commission recommendation on ‘best practice’ guidelines, rather than new rules. Our research also shows that the pressures from NRAs on MNOs to lower mobile termination charges are highly uneven in the top three markets: they are most acute in the UK (predictably, given the pro-consumer orientation of Oftel), less significant but nevertheless present in Italy, and non-existent in Germany. Thus, if the UK Competition Commission endorses Oftel’s proposed charge cap in its forthcoming ruling, we can expect the four leading UK MNOs to lose about £880 million in revenues for the 2002-2006 period, with the annual reduction in 2002-2003 estimated at about £265 million.

The flow of news about ITV is going from bad to worse. But we think that the market may have misunderstood the real story behind last week's bombshell that ITV viewing has fallen by 25% in a year. This figure could have been predicted from existing data.