The outlook for ad-supported UK media businesses is brighter in the short term than in the medium term, irrespective of who wins the election, since fiscal tightening is inevitable early in the next parliamentWe expect the Conservatives, should they win, to favour commercial media (Sky, ITV) over the BBC in general and in particular in the upcoming negotiations on the licence fee settlement post 2013Super-fast broadband networks enjoy cross-party support, but Labour’s 50 pence landline tax was blocked by the Conservatives, who prefer to use a small portion of the BBC licence fee

Ofcom’s long awaited final statement on its pay-TV investigation will include its decision over Sky’s Picnic proposal

We expect Ofcom to greenlight Sky’s Picnic subject to ancillary conditions aimed at preventing the DTT pay-TV platform tipping towards Sky, and giving other DTT pay-TV retailers the chance to establish successful competing businesses

It is not at all certain whether Ofcom will have addressed the concerns of competing pay-TV retailers fully to their satisfaction via the soon to be announced ancillary conditions, while Sky has other routes to the DTT market besides Picnic

There were approximately 18.4 million fixed broadband lines in the UK at the end of Q4 2009 including those used by small and medium enterprises (SMEs)

Subscriber growth over the past year has continued to drop but the rate of decline has slowed to the lowest ever. Year-on-year subscriber growth in Q4 was 5.7%, only slightly down on Q3

Looking at net additions, Q4 saw the strongest sequential growth in percentage terms since the early days of UK broadband, with growth of 54% compared to 10% in Q4 2008. The leap in Q4 2009 was from a relatively low base, but even in absolute terms, the sequential increase in net adds of 111k was the highest since Q3 2004

The News Corp management has given Sky Deutschland a full and costly revamp in 2009, leading to a steep year on year increase in negative EBITDA of around €200 million

Underlying trends of improvement in net subscriber additions, ARPU growth and churn reduction, assisted by its HD offer, suggest that Sky management will get close to, if not actually meet, its 2011 breakeven target

However, there are significant downside risks in the historically tough German pay-TV market, and robust profitable growth beyond 2012 presents a real challenge

Sky fiscal H1 2010 results show continued resilience in the face of weak economic conditions, delivering strong net subscriber growth, a big lift in ARPU, and a record lift in HD subscriptions, almost 200,000 up on any previous quarter and only just short of the half a million mark

Sky+ HD is now manifestly the centre point of a three-pronged operational strategy that focuses on driving customer growth, selling more products into the customer base and seeking efficiencies in fixed costs

Sky 3D, due for residential launch in H2 2010, fits in well with the core Sky+ HD proposition and the satellite operator looks well placed to combat growing retail competition from other platforms, assuming Ofcom implements its wholesale pay-TV proposals for Sky premium subscription films and sports some time in spring 2010

The Court of Appeal’s (CA) dismissal of Sky’s second attempt to overturn the Competition Commission’s (CC) decision that it must reduce its 17.9% shareholding in ITV to below 7.5% makes it increasingly probable that Sky will comply with the CC ruling at some point during 2010/2011

Although the CA’s dismissal of Sky’s appeal has always seemed the likely, even if never certain, outcome, the extra time consumed has so far benefited Sky greatly as the ITV share price has recovered from a low of below 20p in March 2009 to around 60p in January 2010

Sky’s share purchase was seen by ITV and others as unwanted interference in ITV’s affairs, but there was no suggestion of interference during the whole period of review by the competition and judicial authorities, while the outcome suggests that any future interest shown by other leading UK TV media players will probably also raise tough competition issues

BT Retail has announced its intention to launch residential
40 Mbit/s broadband at similar price points to its existing two higher tier
broadband offers. While this looks unlikely on its own to create significant
additional shareholder value, it could eventually help BT retain existing value

The move is unlikely to seriously inconvenience other
players for the next year or so, but could encourage TTG and Sky to sign
wholesale deals with BT for higher speed broadband and, ultimately, make it
more likely that a demerged TTG is acquired by another player

BT Retail’s strategy is likely to accelerate the
implementation of state-backed rural NGA in the UK since end user demand
outside commercially viable areas will be greater than would otherwise have
been the case

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