Service revenue took a dip in Q4 to 1.5% as a waning price rise impact in the UK combined with the loss of positive one-offs in Germany.

We expect growth to slow further through 2024 as many operators implement lower index-linked price rises which are also coming under increasing regulatory scrutiny.

Vodafone has made progress on its turnaround plan—striking deals for its Italian and Spanish units—but it is not yet out of the woods, with ongoing challenges in Germany and approval still uncertain in the UK.

As we noted previously—despite the explosion in volume and access to content—long-form viewing is narrowing around fewer programmes

At the same time, younger viewers are watching a greater proportion of video alone, resulting in a growing schism between what is watched by young and older viewers

The upshot is a two-pronged escalation of pressure on content providers—trying to create a hit when long-form viewing is both declining and concentrating, while, by age at least, adult audience demand becomes increasingly binary

Streaming profitability beckons, but owes much to the profitable services folded into companies’ DTC segments alongside the headline streamers.

There is a broader move towards bundling and price rises. The former bolsters subscriber additions and lifetime value but is ARPU-dilutive, while price rises will bump up both ARPU and churn.

2024 marks the first year with multiple players at scale in the ad space, as Prime Video entered the market. Other streamers with high CPMs and lower scale may be forced to re-examine their offerings.

UK consumers bought £123 billionof goods online in 2023, up 63% on 2019 (vs 7% for offline). Online sales of non-store retailers, such as Amazon (and Temu, Shein, Next), reached £60 billion in 2023, of which Amazon—a nascent online advertiser in the UK—accounts for about £43 billion.

The pandemic’s structural boost to the online channels of store retailers—which operate on the open internet, outside online walled gardens—lifted sales to £63 billion in 2023, up a huge 78% on 2019. With more competition for spend in straitened times, they are using advertising more aggressively.

The open internet is also the domain for online-transacted services: the return to in-person experiences drove the biggest ecommerce gains since 2022, as consumers purchased services online worth an estimated £291 billion in 2023 and rising.

Meta's China risk is overstated: the spend from Chinese advertisers is diverse and resilient to everything short of a full-blown trade war. 

Apple (and Tesla) are in the more precarious position of selling directly in-market, and face sharpening domestic competition.

Amazon's exit from selling in China still leaves it exposed: its marketplace strategy is built on Chinese sellers, whose potential routes to market are proliferating with local platforms going global.  

The value of the domestic rights of major European leagues is falling due to the declining competitive intensity between broadcasters.

The Premier League’s new rights deal extends its lead, while Serie A faces a 10% fall in revenue next season and Ligue 1 struggles to get a flat fee.

Sky and DAZN have cemented their status as Europe’s top football broadcasters. Amazon has refocused to one game per week.

Book pricing has stagnated over the past two decades, leading to severe real-term declines in price per book. Nominal prices are now on the rise, but they are still swamped by inflation, and there is no prospect of them catching up to where they were.

The cost to produce books has been hit by many of the same inflationary conditions affecting companies (and people) across the board, leading to tough conditions at publishers, particularly small ones.

Fortunately, books offer many ways for publishers to price discriminate, charging more to price-insensitive, motivated readers.

European mobile service revenue growth again improved, albeit marginally, with the quarter’s gain driven by declines easing further in what nevertheless remain the three weakest markets: France, Italy and Spain. Generally stabilising pricing environments were a key factor although ARPUs in these markets remain largely in decline, under continued pressure from strong out-of-bundle revenue declines

In a post-consolidation world, H3G/O2 in the UK and Yoigo in Spain will be the only mobile-only MNOs in the top five European mobile markets, effectively cementing a convergence based future. Consolidation trends might point to the prospect of greater price stabilisation but a fresh land grab for the converged market could derail this

Overall, in spite of healthy underlying data trends, we continue to see medium term growth recovery prospects capped at around 1% given precedent from both the UK, where a healthy economy, healthy pricing environment and strong data trends have failed to exceed this level, and Germany, where post-consolidation revenue growth has reverted to negative territory, both due to competition and consolidation

At launch, Google’s new subscription service YouTube Red competes most directly with premium music streaming services, also offering ad-free videos

YouTube’s augmented revenue model re-boots incentives for native talent to produce content for the platform, and will also widen its appeal for established content producers

Although consumers are likely to find paid subscription for ad-free videos a weak proposition, Red holds much potential for YouTube as it competes for attention across device ecosystems, and presents little risk to its existing advertising model

European mobile service revenue growth improved to the highest in over four years driven by improvements in the three slowest growing markets of late. Out-of-bundle revenues are still declining at a rate of over 10% but data revenue growth trends point to underlying strengths in the revenue profile. Looking at the longer term picture begs the question as to whether the quarter’s improvement can be repeated over the next 18 months, transforming the industry into one with extremely healthy revenue growth of 5%-10%; on balance we are not very optimistic

Two major in-mobile transactions are yet to be approved by the EC, namely H3G/O2 in the UK and an H3G/Wind JV in Italy. The recent precedent from Denmark is somewhat discouraging, although the Danish consolidation was unusual in some respects. Nonetheless comments from the new competition commissioner Margrethe Vestager suggest that regulatory caution towards 4-to-3 mergers is still high

Progress towards convergence is continuing with few operators in a post-consolidation world being either 100% fixed or 100% mobile. Convergence has to date been discount-led and damaging to market revenues, but post-consolidation, operator rhetoric has been reassuringly more focused on intentions for increased investment in both LTE mobile networks and high speed fixed networks