After a quarter coloured by big, returning series Netflix now has just shy of 104 million subscribers worldwide, with, for the first time, the majority living outside the US
Content expenditure continues to dazzle with $4.2 billion spent in the first half of 2017. Negative free cash flow looks set to hit $2.5 billion for the year, with large upfront payments for self-produced and commissioned content coupling with rights acquisition expenditure to create a library of programmes that necessitates continual subscriber growth
Current international growth is small considering the magnitude of the opportunity, revealing the difficulty of creating sizeable customer bases outside of the West, where competitors are cheaper, US programming less desirable and internet access comparatively limited
Accelerating print advertising declines in 2016 are placing pressure on local newspaper publishers to deliver faster online growth
However, digital growth is being supported yet compressed by Google and Facebook; we estimate SME expenditure on Google is roughly 2x the local press, and we expect SME spend with Facebook to match local newspaper advertising revenues in two to three years
Publishers need to grow consumer registrations and subscriptions, digital display and also digital marketing services, in partnerships with the tech giants – but first they have to convince consumers they have relevant use-cases that global platforms cannot replicate
Tinder is one of the most high-profile mobile apps on the market and has transformed the adoption of online dating
Tinder’s success is due in large part to its understanding of user experience, which is key to getting, keeping and upselling users through network effects
But the financial value of this success is limited by the industry: even a mobile revolution has not created a high-revenue mass market where none existed before
UK residential communications market revenue growth dipped 0.6ppts in Q1, from 3.3% in the previous quarter. This was mainly driven by ARPU weakness arising due to the timings of Sky and Virgin Media’s price rises, but weakness also stemmed from the sustained decline in broadband volume growth and continued new customer price competition
In competitive terms, BT and Sky suffered as a result of communicating price rises in the quarter, Virgin Media had a strong quarter if not quite as good as it was expecting, and TalkTalk manged to recover to positive retail broadband net adds at the expense of high marketing costs
BT, Liberty Global and TalkTalk issued profit warnings in the quarter, all of which were at least loosely related to increasing pressures in the consumer market. We expect these pressures – a slowing broadband market, an expanding Virgin Media, and a stabilising TalkTalk – to continue
After a US debut, Amazon’s marketplace of SVOD services arrives in the UK and Germany, but without the major draws of HBO and Showtime
Unbundling SVOD for premium content strengthens Amazon’s position in the fast-developing connected TV landscape, where Prime Video is taking on Netflix, NOW TV and YouTube
For niche content providers, Amazon Channels provides a new, low-friction route to go direct-to-consumer with a mix of live and on-demand premium content alongside existing distribution strategies
Our latest forecasts point to the continued strength of DTT within the UK broadcast market. We predict DTT-only homes will account for 42% of TV viewing ten years from now, up from 38% today.
Much of this is due to the UK’s ageing population profile, since DTT skews older. The number of over-45s in DTTonly homes is set to increase by 13% by 2026.
The other key factor is the continued growth of flexible pay-lite services—for example, Netflix and NOW TV— which are of greater appeal to younger audiences.
Sky delivered 5% year-on-year revenue growth over the first nine months at constant exchange rates, although operating profits fell due to several factors, most notably the massive step-up in UK Premier League TV payments under the new contract
On closer inspection, relatively weak UK & Ireland Q3 revenue growth compared with previous quarters largely reflects one-off special factors
Otherwise, positive quarters for Sky Germany & Austria and Sky Italy and improving cost efficiencies suggest that the Sky Group remains broadly on track to deliver its Investor Day 2016 guidance objectives
Cross-device identity profiles are used to stitch together fragmenting online ad audiences, but also to enable new links between advertising and marketing, across European markets
This moves value from media itself to understanding each consumer and how they access content and services on proliferating connected devices
By 2020 we predict that 58% of all UK online ad buys by value will make use of high-quality audience IDs, led by the largest advertising platforms but limited by privacy regulation and cost
2016 was yet another year in which we saw big changes in the UK’s video consumption habits amongst the under45s, with little let up in the decline of traditional broadcast linear TV viewing for the younger age groups.
Online video-on-demand services will continue to grow, partly at the expense of traditional TV audiences. We also expect the overall volume of viewing to rise, mainly due to wider production of and access to short-form content.
Despite these changes, conventional broadcasters look to be strong for years to come—we estimate they will still account for 80% of all video viewing in 2026.
The temporary cool-off in hype around VR following a very buzzy 2016 is not reducing the flow of investment and talent into the industry, notably in video production utilising 360Video technology; setting the stage for the development of a truly new entertainment medium
Fully immersive interactive worlds will continue to be the mainstay of the video games industry, while video entertainment will exist in a multi-track environment, with some genres (news, documentaries , natural history) making 360Video mainstream well before long-form narrative-driven entertainment
2017 will still be a challenging year for consumer device VR roll-out and mass market adoption; Oculus, Google, and Sony continue to seed the market, providing large scale funding and equipment directly to developers and content producers