Google’s UK revenue increased 18% YoY in Q1 to £534 million (net of hedging gains), its highest rate of quarterly growth since the recession started in 2008
Better than expected performance is due to reacceleration in paid search, underpinned by improving levels of retail e-commerce and business and advertiser confidence
We have raised our 2010 forecast for Google UK to 18% YoY growth and for UK online ad spend to £3,875 million, representing a like-for-like rise of 13% YoY
Internet advertising rose 4.2% YoY in 2009 on a like-for-like basis in the UK, according to IABUK/PwC, due to growth in search, with classified and display down; however, previously unreported spend, including Facebook, pushed the total to £3.54 billion
Last year, for the first time, Google accounted for over half of spend (versus one third in the US) and 12% of UK ad revenue, a market presence that is significantly larger than in the US
Including Facebook, now No.1 for display, and increased spend on search, our 2010 growth forecast is 11%, pushing total spend to £3.82 billion or 25% of UK advertising
Google is almost certain to close its China site, Google.cn, foregoing much of the revenue and potential upside from the world’s largest internet population and fifth biggest market for internet advertising
Google.cn has performed reasonably well to date, taking about 20% of spend on paid search compared to c65% for market leader Baidu. We would expect Google’s future performance to improve but not to displace Baidu
We estimate the revenue foregone over 2010-15 from closing Google.cn to be between $2-4bn or 8.5-17% of FY2009 revenue, but it could be far higher if the Renminbi were to appreciate substantially versus the dollar
Hulu’s postponed UK launch, and the inability of SeeSaw and MSN to get carriage deals with the BBC and ITV, underscore the difficulty for internet TV aggregators of acquiring mainstream content
In-stream video advertising is nascent – we estimate it was worth just over 1% of UK TV ad spend last year – giving major channel operators/rights holders little incentive to syndicate their programming to online services
The future for ad-funded internet aggregators continues to look highly challenging, aside from YouTube, due to its audience scale and Google’s deep pockets
The News Corp management has given Sky Deutschland a full and costly revamp in 2009, leading to a steep year on year increase in negative EBITDA of around €200 million
Underlying trends of improvement in net subscriber additions, ARPU growth and churn reduction, assisted by its HD offer, suggest that Sky management will get close to, if not actually meet, its 2011 breakeven target
However, there are significant downside risks in the historically tough German pay-TV market, and robust profitable growth beyond 2012 presents a real challenge
Mobile content is moving to the centre of strategies for online
media. At MWC, the world’s biggest mobile conference, Google announced it now develops
all products ‘mobile first’ and Facebook reported a quarter of its 400m users access
the service through mobile
Three years after the iPhone
launched, the handset industry is catching up, adding decent user interfaces
and mobile apps to colour touch screens and taking easy access to mobile content
beyond the iPhone
Beyond the self-selecting early adopter iPhone base, we found
real evidence of companies already successfully providing mobile content to much
wider segments of the population
The internet continues to gain share of media consumption and advertising at the expense of traditional media in the UK. This report highlights key online trends in the UK and our current forecasts for internet advertising in 2010 (we will address mobile advertising separately)
Recent news flow – including Google UK’s Q4 2009 results and reports of facebook’s rapid revenue growth – points to a better than expected recovery in internet advertising. On a like-for-like basis, we estimate that online ad spend grew 2.2% last year to £3,425 million or 23.5% share of total advertising
We have raised our 2010 UK forecasts and now predict that Google’s UK gross revenue will grow 12.5% YoY, helping to drive online advertising spend up 7.6% to £3,685 million (excluding sites currently not reported by IABUK/PwC)
The economy remains an issue, with the potential impact of tax rises and cuts in Government spending in H2 threatening the already anaemic recovery. In our view, the balance of risk is still on the downside
Google this week launched the Nexus One, a high spec handset equipped with the latest Android software, customised by Google, branded with Google and sold exclusively through Google (but made by HTC)
In contrast to its usual cooperative self as regards mobile, the Google go-it-alone approach of the Nexus One is likely to irritate handset manufacturers, handset distributers and mobile operators alike
The very limited distribution and limited marketing is likely to limit Nexus One sales, despite the strong hardware and software. The prospects for the Android platform in general remain strong, particularly in mid-range handsets, especially if Google maintains a more cooperative approach than the Nexus One launch has signified