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
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
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
Fiscal FY 2009 closed on a very strong note, with record Sky+ HD additions contributing to Q4 net growth of 124,000, the highest Q4 increase since 2003, and opening up the opportunity for a large increase in TV operating margins after absorption of the initial subscriber acquisition costs
In assessing the medium-term outlook, the Ofcom pay-TV investigation appears unlikely to have a material impact on Sky earnings, even if Ofcom pushes through its premium wholesale proposals, while the advertising downturn may work to Sky’s benefit in developing its competitive strengths in programme origination outside sports
Results for the telecoms business again displayed strong volume growth in a difficult market. The business has now turned EBITDA-positive and is expected to generate a quarterly operating profit during FY 2011. However, original guidance for IRR remains challenging
There is a reasonable chance that, by the middle of 2010, Ofcom will introduce regulations concerning the availability and pricing of wholesale premium movie and sports content, as outlined in its third pay-TV consultation released on 26th June 2009
The Ofcom wholesale remedy proposals are likely to provide rival retailers to Sky with modest benefits in new customer acquisition and customer retention in the first three years, whilst opening up the prospect of wider competition as the broadband infrastructure develops
The complexity of the wholesale pricing issues being addressed by Ofcom may yet stand in the way of achieving an effective “must offer” wholesale remedy
Ofcom’s recent statement on LLU pricing has increased the amount which BT Openreach can charge unbundlers for full LLU over the next two years by about 8% overall
We estimate the changes will raise BT group EBITDA by less than 1% over the two years to March 2011
TalkTalk Group’s recent retail price increase is more than enough to offset the impact of Ofcom’s ruling on its annual EBITDA to March 2010, but the ruling could still take 5% off annual EBITDA to March 2011
Sky has yet to start mass migration to MPF and is more exposed to increases in the price of ancillary services, but less exposed to those for MPF rental. Sky’s annual residential telecoms EBITDA to March 2011 could be 10% lower, but this could be reduced if management takes the opportunity to increase the price of retail line rental
According to press reports, Sky has lodged a bid of about £160 million for the VMtv content arm of Virgin Media (VMed), estimated to be 50-60% higher than other offers in the latest and final round of the bidding contest
At TalkTalk Group (TTG) net broadband additions for the quarter were relatively strong, given likely market growth, probably due at least in part to reduced subscriber loss at AOL UK
In our view cut-price business broadband, rather than IPTV, offers the best prospect of profitable revenue growth in fixed line