Vodafone Europe’s service revenue growth declined again in the September quarter to -4.6%, but on an underlying basis it improved, and volume growth also improved, suggesting that improving economic fundamentals are starting to feed through

Margins again fell, with the net benefit of the cost reduction program a long way from compensating for revenue declines, but overhead costs are at least dropping in absolute terms

We are optimistic that revenue growth can continue recovering in Europe, implying a still-depressed 2009/10 but a much better 2010/11, with positive revenue growth in 2010/11 a real possibility, and that the company could stabilise margins if it sticks to cost reduction plans, and resists the temptation to ‘reinvest’ in ‘strategic’ initiatives

Channel 4 has confirmed it will distribute catch-up and archive TV shows via YouTube on a non-exclusive basis starting in November, with the broadcaster responsible for selling advertising around its content

The partnership looks to be a win-win: Channel 4 stands to get a huge lift in its online audience while retaining control over sales, while Google achieves a breakthrough deal with a major broadcaster with the hope of more to come

We expect a rash of similar deals as rights holders, broadcasters and video service providers jostle for position in the nascent internet TV market, but few will benefit from the special synergies offered by Channel 4-YouTube

Vodafone has launched a suite of internet services, platforms and handsets under the ‘Vodafone 360’ umbrella brand

Our views are mixed: we applaud the contacts back-up service that will be available across a wide range of handsets, provided it proves user friendly, but are puzzled by the point of a Vodafone-designed user interface built onto a fairly obscure smartphone operating system

Overall, if Vodafone 360 can stimulate data usage amongst low- to mid-end handset users, Vodafone would profit in both revenue and loyalty terms, but competing at the high end with the likes of Apple, RIM and Google strikes us as both needless and futile

Vodafone’s European revenue growth continued to slide, down to -4.4% in the June quarter from -3.3% last quarter, which itself was a sharp drop

A substantial element of this quarter’s decline was driven by an acceleration in termination rate cuts in Germany, but the general trend is weak volumes driven by a weak economy

With a substantial termination rate cut in the UK taken from 1st July, we expect growth to decline again in the September quarter, before stabilising/improving for the rest of the year

A last minute rescue proposition has postponed the threat of Setanta entering into administration by at least another week, subject to meeting its revised payment schedule of sums owing to the Premier League

The profound commercial difficulties experienced by Setanta highlight the weakness of EU efforts to ensure competition in the sale of live televised rights to top UK domestic football and underline the inflated rights costs that would face any other complementary premium pay-TV sports supplier

Setanta’s survival hinges on its ability to negotiate further cuts in its rights payments and persuade investors that it can become profitable by making the necessary revisions to its retail/wholesale business model

Vodafone (and others) are reported to be interested in acquiring T-Mobile in the UK, but any such merger would be likely to face significant barriers from regulatory authorities

This achievement would be moderated by ‘integration leakage’, i.e. increased churn caused by customers leaving who were initially attracted by an aspect of one of the operators that disappears after integration, but the net result should still be positive for the JV

The remaining UK operators will benefit both from this churn and the reduction in competitive intensity associated with five players dropping to four. While all the operators may win, UK consumers might lose, with regulatory clearance thus still far from certain

Vodafone’s European revenue growth dipped sharply in the March 2009 quarter to -3.3% from -1.4% in the previous quarter, due to a combination of recessionary impact and continuing underperformance of the market

EBITDA margins also declined by 2ppts, with falling handset subsidies more than compensated for by a sharp rise in general operating expenses, despite cost cutting efforts

Implied guidance for Vodafone Europe in 2009/10 of an organic 4-5% drop in revenue and 2ppt dip in EBITDA margin is bleak but realistic, with even these figures at risk if either the economy does not start to recover or the company cannot keep general operating expenses flat

Channel 4 broke even in 2008 despite a 5% fall in total TV NAR (net advertising revenues), through a combination of outperforming the market and £25 million in programme budget cuts. Its annual report also underlined its credentials as the alternative PSB voice, based on market research conducted over the year

The crunch time is likely to come in 2009 and 2010. Although financially better placed in many ways than ITV, and more flexible over committed programme spend, the recession threatens Channel 4 with a cumulative annual net deficit of around £150 million in 2010 without further action

Financial pressures facing Channel 4 highlight the need for urgent government action, in the absence of which much depends on the outcome of Virgin Media’s efforts to sell its content assets and the ultimate willingness of BBC Worldwide to engage in a JV with Channel 4. Consolidation would help even if it did not solve all of Channel 4’s pressing financial concerns

Google UK delivered solid performance in Q1, with gross revenues up about 8% YoY to £440 million; however, the huge growth of previous years has ended, due to a combination of recession and growing maturity in search

Key verticals (finance and travel) are being impacted by the downturn, but Google should continue to benefit from the secular shift of advertising to online and increasing advertiser focus on measureable ROI

We now estimate that Google’s UK gross revenues will rise by 4% this year to £1.66 billion, supported by volume growth in search, with little contribution from display and mobile still firmly rooted in the experimental phase

IAB/PwC released figures for 2008 showing that annual spending on internet advertising rose 19.1% to £3.35 billion, accounting for close to 20% of total UK advertising, far higher than in any other major market

The recession started to bite in H2 2008. As budgets are cut, display has been hit harder than search and classified, as a rising share of inventory (almost 50%) is sold by ad networks for discounted CPMs or on a performance-basis

Our revised forecast for internet advertising is for zero growth in 2009, with a low single digit rise in paid search offset by falls in display and classified