Netflix’s US business provides an insight into the patterns of the subscriber take-up of a maturing streaming service, trends that the comparatively nascent international markets may yet have ahead

Through analysis of the relationship between Netflix’s churn, subscriber additions, marketing spend and content release schedule, a clearer view of the rhythms of the streaming business become apparent

Rising churn, and correlation—such as the emphasis on returning original series during the year’s turbulent second quarter—gives guidance on Netflix’s likely future course, including its use of debt

European mobile revenues remain decidedly in decline this quarter at -2% – a slight worsening since Q2 as the full force of cuts to intra-EU calls hits 

There are signs that dual-brand strategies may be reaching their useful limit as erstwhile premium customers shift to value

There is scope for some trends to slowly improve from here, although end-of-contract notifications will impact all markets before the end of 2020, with the UK first off the blocks in Q1
 

With pay-TV competition faltering, UEFA is aiming to stimulate demand for 2021-24 TV rights with early auctions, a possible relaunch of FTA broadcasts, and even, unrealistically, by considering an online service of its own

In the recently completed UK auction, facing no major threat from Sky, BT kept the rights at an almost flat price – probably missing a cost saving opportunity

In the upcoming auctions on the Continent, with former buyers such as SFR, Mediaset and Vodafone having cut back on premium sports, the major platforms’ bids will probably be unchallenged

In spite of total revenue growth of 4%, O2’s service revenue growth took another step down to -3% this quarter, consistent with the worsening environment and EE’s results 

Its true performance is likely better than reported as IFRS15 has an artificially dampening effect on its service revenue as a consequence of O2’s Custom Plans, and is something of a boost to its impressive 6% EBITDA growth

O2 needs to continue to pedal hard to keep ahead of this challenging environment – with little let-up on the regulatory front, more aggression from Vodafone and H3G, and a potential regulatory hit to its Custom Plans 
 

New SVOD entrants are prioritising reach over revenue in the US with extensive ‘free’ offers, including Apple TV+ (to hardware buyers), Disney+ (to Verizon customers), HBO Max (to HBO subscribers) and Comcast’s Peacock (to basic cable homes)

This is the latest development in an unfolding global story of partnerships, continuing on from multiple Netflix and Amazon distribution deals with platforms, bringing benefits to both parties

In Europe, Sky faces price pressure, but it has secured its HBO partnership and can now talk to Disney from a position of strength

With a raft of new streaming services about to hit, there remains a question as to the appetite for multiple subscriptions

Pay-TV subscribers continue to be more likely to take SVOD services—especially when they are distributed on their set-top boxes—however the average number of services per household is well below one

Greater variety and quality of services will likely increase the average number of subscriptions but given the siloing nature of these services, Netflix’s incumbency, library and distribution are its strength; new entrants will battle for a supplementary role

European mobile revenue trends are not yet improving. Italy is still flat-lining at almost -10%, Spain worsened again, and the UK deteriorated sharply. France is the only good news story

5G rollouts seem somewhat tentative. Indications from the UK that it is leading to a more competitive environment may discourage European operators from exacerbating already challenging markets

Prior year comparables for Southern Europe will be more flattering in the second half of this year although a doubling in the drag from intra EU calls will dampen any recovery

Netflix lost 126,000 US subscribers (net) in Q2, the first time this has happened since 2011 when a price rise accompanied the Qwikster debacle

This time a price rise—of one or two dollars, depending on tier—was one culprit, but the soft release schedule of big, returning original series, which usually give a bump to subscriber additions, played a part

Q3 has those series returns in spades, Stranger Things, Orange Is the New Black, Money Heist and Mindhunter likely driving subscriber numbers back up, but the suggestion that there is less flexibility to raise prices than previously assumed is a worry for Netflix and incoming competitors

European mobile service revenue growth slipped again to -2.0%; its worst performance in four years

Regulation limiting intra-EU call prices could hit hard next quarter – with the UK likely to be hardest hit by up to 6% of revenues and 20% of EBITDA

Excluding the EU-call impact, we see greatest scope for improving trends in Italy and France thanks to easier comps and diminishing competitive intensity

After a period of significant outperformance, O2’s Q1 results reverted to sector average revenue growth with ARPU down by 3% and all of the growth coming from ‘other’ revenues

Regulation limiting out-of-bundle spending has been a significant drag which will continue to worsen

A more competitive market and a punishing regulatory outlook will make it very challenging to sustain 2018 growth trends as this year progresses