When we look back at consumer expenditure on pay-TV and alternative entertainment options during past economic downturns across major countries, we find a broad confirmation of the industry’s comparative resilience.

Also found are variations between services sold through annual contracts and cancel-anytime rivals, a negative impact on big-ticket products, and opportunities for substitutional services.

Unique features in the current crisis include the suspension of sport broadcasts and an SVOD-rich offering which widens consumer options. If hardship persists, incumbents like Sky could face tougher times than during the financial crisis.

COVID-19 has sent online news surging, with publishers experiencing massive traffic uplift, as trusted news sources become increasingly important.

But the industry is still heavily reliant on print revenues, and we are seeing supply chains come under extreme pressure as core readers self-isolate and retail giants close or de-prioritise news media. Advertising—including categories like retail and travel—has collapsed.

In face of existential threats to the sector, we have written to DCMS to mobilise Government funding to sustain news provision and journalism.

European mobile service revenue growth improved by 1ppt to -1.2% primarily as a consequence of diminished competitive intensity in France. Trends elsewhere were largely flat.

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly neutral financial impact. Longer term it will be exposed to the fortunes of the economy.

There are reasons to believe that the improvement in trends evidenced in the last quarter may continue as churn reduction takes the heat out of some markets, cuts to intra-EU calls annualises out and for most countries, end-of-contract notifications will only begin to impact in 2021.

 

The UK mobile market was steady this quarter at around -2% ahead of out-of-contract notifications hitting from February.

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly-neutral financial impact. Longer term it will be exposed to the fortunes of the economy.

Elsewhere, there have been green shoots of positivity in the outlook: some good regulatory news; a degree of price inflation; Carphone Warehouse’s retreat is a positive for the operators, and some financial drags will drop out as the year progresses.

Dixons Carphone (DC) has announced the closure of all of its standalone Carphone Warehouse stores, distributing solely through its Currys PC World stores and online going forward.

Several industry trends have led to these difficulties and DC is pivoting its strategy to better position itself for the new reality.

This move is likely to be a positive one for the mobile operators, especially H3G.

2014 has been a good year for total advertising, which we forecast to grow by 5.5% across the year; display advertising spend is also forecast to grow by over 6% year-on-year. This is largely thanks to a positive economic backdrop, where we have seen a significant rise in consumer expenditure over the last two years

Online advertising spend has been the biggest recipient of growing ad spend, with 20+% growth last year, this year and next. This has mostly been to the detriment of print revenues, where online classified search solutions, amongst other factors like declining circulation, have disrupted print marketplaces

Video has been the largest growth area in internet advertising as online video consumption increases. Up to now online spend has largely been accretive to TV budgets but we are starting to see some advertisers switch to online video spend. However we do not expect TV to suffer in the same way as press

UK mobile service revenue growth stayed positive in Q3 2014, albeit at a slightly lower level than last quarter, an achievement given performance in recent years, but a slight disappointment given the previous improving trend. Pricing trends were a little worrying, but data volumes continue to accelerate markedly

With Phones 4U ceasing to trade towards the end of the quarter, Q4’s subscriber shares will be largely determined by where its prior customers end up. With these representing 13% of market gross adds which implies 65% of net adds, the impact is significant

Merger talks underway with the parents of O2/EE and BT, with H3G reportedly getting involved, will have an impact whether they lead to a deal or not; if either EE or O2 (or both) remain independent within the UK, they will likely need reinvigorating and re-motivating as to their raison d’etre or risk drifting without a clear direction

UK consumers have embraced data-hungry services like Facebook and Google, but many also have concerns about privacy online; young people have a more positive view of the trade-off and know how to avoid targeted advertising

Businesses that are conscientious about consumers’ data gain their trust, and the gap between trusted brands and the market as a whole may grow substantially in the future

Despite Edward Snowden’s revelations on ‘Big brother snooping’, the UK Government has secured vast access to communications data without serious challenge to date

European mobile service revenue growth improved by 0.5ppts to -7.2% in Q2 2014, but all of this and more was driven by a reduced regulatory impact; underlying growth has been stuck at around 6% for the last four quarters, with progress in some areas consistently being countered by further pricing pressure

Industry consolidation has progressed to some extent, but would have had little impact in the quarter. Further in-country mobile/mobile mergers are more than likely but uncertainty driven by the changing European Commission may be delaying decisions to move forward

The UK example shows that consolidation is not necessary for market repair, but in the present environment the smaller operators in continental Europe have every incentive to be as disruptive as possible to encourage their acquisition, so further mergers cannot come soon enough

European mobile service revenue growth improved to -7.6% in Q1 2014 from -9.0% in the previous quarter, but most of the improvement came from a drop in the regulated MTR cut impact, with underlying growth only improving 0.2ppts

This is in spite of continued improvements in GDP growth and the highest level of consumer confidence in six years, confirming that the often-blamed economic conditions actually have been having little impact on the market, with competitive intensity the real cause

For this very reason, the approval by the EC of in-market mergers in Germany and Ireland has been warmly welcomed by the industry and investors. Our view is that market repair is dependent on a change of attitude of the incumbents towards long term investment and away from chasing short term subscriber share via price discounting; consolidation may well help with this, but it is neither necessary nor sufficient