The digital transition is almost complete in France, five years after the launch of DTT. After undergoing an audience share decline, TF1's share is stabilising. In contrast, M6 improved its audience share during the transition. Both groups are likely to remain dominant in the FTA TV market, thanks to the partial withdrawal of public TV from advertising sales

The advertising recovery in 2010 was strong. Thanks to its diversification, M6 is less exposed to the cycle than TF1, which is rebounding more strongly. M6 is also structurally more profitable

Pay-TV platform growth has stalled, with subscription decline at Canal+ somewhat balanced by growth of low cost packages of IPTV providers. Canal+ will benefit from the withdrawal of Orange from premium TV and a new distribution deal with Orange. Combined with the roll out of new set-tops with PVRs, we are moderately optimistic on Canal+ prospects

European mobile revenue growth improved by 0.8ppts in Q3 to reach -0.3%, but all of this improvement and more was due to easing regulatory pressures, with underlying growth actually declining marginally

GDP growth continues to improve year-on-year, but in the current low confidence environment underlying mobile revenue growth is not (yet) responding. Smartphone sales are surging, but their net impact on revenue is hard to discern

Looking forward, the regulatory impact is likely to turn negative again for the next few quarters, so some underlying growth catch-up is required for revenue growth to stay at around zero

Unlike other European TV markets, the digital transition started in Germany 15 years ago and is having little impact on advertising or audience share trends of leading FTA broadcasters, RTL Group and ProSiebenSat.1

RTL Group and ProSiebenSat.1 each have both German and international FTA TV operations, but German FTA TV is more profitable. RTL and ProSieben operate a de facto duopoly in advertising, with broadly stable market shares

Germany has historically been difficult for pay-TV due to the early development of FTA multichannel and ample FTA broadcast of football highlights. News Corp’s Sky Deutschland has improved key metrics, but losses remain significant and achieving break even in the medium term will be a challenge

This report on Sky Italia and Sky Deutschland, News Corporation’s Continental Europe pay-TV assets, complements our coverage of BSkyB in the UK. We look at the market environment, including regulation and competition. The report also provides subscriber, revenue and earnings forecasts and SWOT analysis.

Ofcom’s decision not to investigate Project Canvas under the Competition Act removes one more regulatory obstacle to the launch of the broadband connected TV service with the brand name YouView

It looks increasingly as if the YouView launch will experience further delay, with autumn 2011 looking steadily more likely as disputes continue over the satisfactoriness of the technical specifications released by YouView for meeting manufacturer needs

Although backed by powerful broadcast and ISP interests, YouView faces stiff challenges to achieving widespread adoption among ‘Freeverse’ homes, with much depending on YouView’s ability both to deliver consistent product quality and to get its message across

The decline in UK residential broadband market growth has paused due to accelerating adoption by older householders and increased household formation. We expect 970,000 net additions in 2010 and 20.5 million broadband households by 2015. However we expect growth will continue to decline from 2011 as the impact of the government spending review feeds into consumer confidence and the market becomes increasingly saturated

As BT’s next generation access network is deployed, there is likely to be accelerated improvement in DSL price/performance, with DSL customers migrating to a 40 Mbit/s headline speed as it becomes available. The impact of this is likely to be compounded by Virgin Media up-rating its broadband portfolio from speeds of 10, 20 and 50 Mbit/s to 20, 50 and 100 Mbit/s

In the absence of further consolidation, in market share terms the industry appears set to remain divided into three strategic segments: the ‘big three’, brand extenders, and Sky. We expect residential broadband market revenue (excluding content) to continue to decline gradually, stabilising by 2015 as the impact of market share gain by lower priced ISPs attenuates due to a combination of a maturing market and reduced price differentials caused by NGA

Everything Everywhere’s maiden investor day presentation was soured by the disappointing results it reported for Q2 2010, with service revenue growth underperforming its UK competitors by 7 percentage points. At current relative growth rates, O2 will retake its lead by June 2011

The synergy savings targets have been maintained, but focused more towards back office functions and away from front line assets such as shops and network base station sites, with the brands being kept separate for the time being. This is a sensible enough approach, and the cost savings still look eminently achievable

Going forward, the company will have the advantage of a better network but the disadvantage of disruptive integration for the next few years. Its main challenge will be to reverse the current negative revenue momentum, which puts both its revenue and margin targets at risk

Late entrant Bouygues Telecom is gaining broadband market share via the quad play. Orange and SFR have now also launched quad plays, but Iliad’s mobile offers will be ready only in 2012

Iliad hopes to use its new Freebox to energise recruitment around new IPTV services in Q4 2010. SFR will also launch a new box

Led by a likely VAT hike for triple play bundled IPTV services in 2011, triple play pricing is set to rise after many years, from €30 to €35/month. FTTH upgrades in urban areas will be gaining visibility this winter

There were approximately 19 million fixed broadband lines in the UK at the end of June 2010 including those used by small and medium enterprises (SMEs)

Year-on-year subscriber growth in Q2 increased by half a percentage point, following stabilisation in Q1, the first material since the early years of UK broadband

Looking at net additions in the quarter, Q2 saw a sequential drop of 23%, the lowest Q1 to Q2 sequential decline since 2005 . Year-on-year growth in net adds, at 51%, continued to accelerate rapidly

FT has put majority stakes in Orange Sport and Orange Cinéma Séries on the block, and claims to have held discussions with News Corp. We think it unlikely that an investor would be interested in entering the French pay-TV market, dominated by Vivendi’s Canal+

We believe FT could find a buyer for Orange Sport in Disney’s ESPN, which could prove viable if a cross-retailing deal is reached with Canal+. A Eurosport merger is another option. Orange Cinéma Séries could be viable under a new owner, if it widens it distribution to other platforms

Now officially on the way out of the pay-TV production business, a welcome decision in our view, Orange can focus on improving the consumer value of the basic TV offering on the triple play marketplace