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

France Télécom’s forthcoming Chief Executive Officer, Stéphane Richard, is considering a radical shake up and potential U-turn of Orange’s TV ‘content’ strategy, initiated and driven by CEO Didier Lombard

Orange could withdraw entirely from supplying premium pay-TV channels (sports and film) and distribute only third party content, as has been the focus of other broadband suppliers

A retreat of Orange from TV content would enable a more active cooperation with the Canal+ Group, benefiting both partners, who have largely overlapping subscriber bases

Based on the recent announcement by the French Professional Football League, we now expect Canal+ to be awarded the exclusive rights to broadcast Premier League events for the three seasons starting in 2004, for which it offered €480 million. (Rival TPS is challenging the League's approach to the Competition Commission, so the story may yet have an unexpected ending.) These payments will add to an already hefty calendar of payments for Canal+ under the 1999 contract, as a result of which Canal+ is likely to report no or low profits in FY 2002. This note details the aggressive cost cutting and revenue-raising measures that will be needed to achieve a modest level of profitability going forward. By FY 2005, when Canal+ becomes the sole purveyor of Premier League events and payments rise by 60%, the subscriber base will have to be 180,000 higher just to maintain profits at 2004 levels. This seems a challenging target given that Canal+ lost 70,000 subscribers this year. In short, we think that Canal+ may have won the battle for Premier League rights at the price of its profitability in the medium-term.

The November 12th bids for football rights are a nightmare for Canal+. Its operating margins and cash flow are under pressure, but failure to outbid TPS would mean a probable loss of perhaps 25% of its subscribers. This makes it likely, we think, that TPS will end up buying Canal+ from Vivendi, whoever wins the football rights, at a much lower price than the valuation of €3.5bn suggested recently by Morgan Stanley. Similarly, Vivendi may realise that it will be forced to sell the studio and the record business to Bronfman/Diller for less than current valuations. This potential devastating scenario perhaps explains why M. Fourtou is so keen to buy the rest of Cegetel, rather than selling out to Vodafone. Otherwise he would have little else left to manage. Or perhaps he is simply playing poker with Chris Gent, but running the risk that he ends up over paying. Vodafone cannot lose. It will either buy Cegetel now, or wait for it to fall into its hands when the bankers withdraw support for Vivendi.

Last week Nokia launched its first 3G handset, the 6650. Or did it? Although the size, weight and price initially looked impressive, the handset has not really been launched (not until H1 2003), and technically it is not really 3G (the data rates are too slow). By the time the handset is actually widely available to consumers, GSM-only handsets will have a much better feature/price combination, with a 3G handset only appealing to laptop users who would probably prefer a data card anyway. This is good news for the operators - they can comfortably delay potentially expensive 3G roll-outs safe in the knowledge that competitors will not gain any advantage by being first to market with the current generation of handsets.

This note looks at what has happened to NTL in the past year, and the prospects for 2003-2004. It emerges from a period of introspection to face stronger competition than ever. Sky has won the battle for digital TV. Although NTL has been successful in broadband this year, BT has serious plans for this market.