In this first of two reports on TV platform growth, we consider the impact of digital convergence on the traditional broadcast channel distribution platforms. As the analogue era draws to a close, the new era of digital convergence across multiple screens and devices is gathering momentum. We assess the various forces of change, including superfast broadband rollout, the continuing growth of pay-TV adoption and the strategic resilience of Sky and Virgin Media. We provide our forecasts for TV platform penetration to 2020.

The CC seems to be preparing to reverse its provisional conclusion that Sky’s hold over premium movies is damaging competition

In this presentation we show our analysis of trends in UK broadband and telephony to December 2011, based on the published results of the major service providers.

Highlights for the December quarter include a return to the lower rate of broadband market growth seen prior to mid-2010, accelerating growth in the number of subscribers to high speed broadband and the continuing increase in market share of BT Retail and BSkyB at the expense of virtually all other players

This quarter’s edition includes a look at Openreach’s wholesale FTTP On Demand, planned for launch in 2013.

Following announcements by Virgin Media to double the speeds used by most cable customers, and by BSkyB to launch high speed broadband offer in April based on Openreach’s wholesale VDSL product, by 2016 we now expect about half of UK residential broadband subscribers to be on high speed broadband, i.e. xDSL or GPON at 30 Mbit/s plus, and DOCSIS at 20 Mbit/s plus

Sky’s 16% year-on-year increase in interim profits reflects strong operating efficiencies and reduced marketing costs due to the slowdown of TV gross additions in a tough economic climate, while continuing low churn underlines its product strengths

Fibre broadband deployment and the January launch of streaming-only services by Lovefilm and Netflix signal increasingly competitive conditions, but Sky is well placed and the challenges should take several years to materialise

Sky management is fully aware of the need for its pay-TV business model to evolve in the age of digital convergence, where innovation and building value are prerequisites of success, and is actively addressing the issues

With the economy drifting sideways, we have set our centre case forecasts at 0-1% average annual growth in TV NAR and assigned a low probability to a repeat of the hyper-cyclical downturn of 2008/9

Comparative international data show a pervasive long term weakness in display advertising trends across the developed world, while emerging markets in Asia, Latin America and Central/Eastern Europe take an increasing share of global budgets

With digital switchover near completion, channel viewing shares across the main commercial groups should stabilise, but internet advertising, especially online video, will exert a negative structural downward pressure on TV NAR over the next three years at least

The launch of Netflix in the UK and Ireland has ignited the debate on the threat from over-the-top video to pay-TV services from Sky, Virgin Media and BT

Unlike in the US, Netflix’s UK prospects and those of competitors such as Lovefilm, are fundamentally limited, given the availability of low priced pay-TV with strong on-demand components included for free

The impact of Netflix on the UK pay-TV industry is therefore likely to be even smaller than the (hard to discern) effect it has had in the US

Virgin Media’s plan to double the line speed of most of its broadband customers is the latest in a series of moves to retain its position as the leading high speed internet service provider in the face of BT’s deployment of next generation access (NGA)

The move presages further price increases and an upgrade to offers for new cable customers, but is in the first instance about retaining the large existing base of cable customers currently on 10 Mbit/s

The £150 million or so of incremental capex required is small in the context of NGA, but the impact both on cable churn and demand for higher speeds across the wider market is by no means certain

As Phase 1 digital shift from broadcast analogue to digital nears completion, individual platform growth trends have almost flattened out

The most likely area of change in platform trends over the next ten years concerns basic only subscription pay-TV, where we anticipate an overall increase in the total pay-TV base and change in platform balance arising from the introduction of low price basic packages

Phase 2 digital convergence between TV and the internet promises to take many years to reach maturity, and many questions need to be addressed in order to be able to assess its potential impact on the current broadcast TV marketplace over the next ten years.

In this presentation we show our analysis of trends in UK broadband and telephony to September 2011, together with our latest projections for residential broadband subscribers and market shares to 2016. Highlights for the 2011 September quarter include accelerating growth in the number of subscribers to high speed broadband, and the continuing increase in market share of BT Retail and BSkyB at the expense of virtually all other players. This quarter’s edition includes a look at high speed broadband pricing, and our take on the new guidelines on broadband advertising.

Although we continue to expect broadband subscriber growth to drop, we expect growth to be supported by increasing adoption among older and/or lower income householders, who are becoming more aware of the benefits of going online. We have also increased our residential market share projection for BT Retail, which has gained real momentum over the past year, with brand strength among late adopters and effective marketing of high speed broadband both having an impact.

Sky’s Q1 2012 produced strong 16% year-on-year headline growth in adjusted operating profits, although weakening TV product net additions underlined the challenging economic conditions

Churn remains comparatively low in spite of the economic conditions, while Sky’s current round of major investment in entertainment content, now showing the first signs of bearing fruit, could prove vital to holding churn down and stimulating gross additions

Growth in home communications dropped back compared to the level seen the previous autumn, but was still well above that seen in 2009/10 thanks to strong growth in standalone sales