Service revenue growth was up just 0.1ppts to 2.0% this quarter, as price rises in the UK and the peak of the roaming boost offset weakness elsewhere.
Price increases to combat inflationary cost pressures are gathering momentum—a potential revenue cushion as roaming tailwinds diminish and challenging economic conditions weigh.
Vodafone is battling strategic issues in most of its main markets—significant change in strategy will be required from the new leadership.
With major studios arguably over-indexed on SVOD, the stickier experiences of interactive entertainment and the metaverse will eventually form a critical pillar of studio D2C strategy, boosting subscription services and tying in closely with consumer products and theme parks.
Disney’s appointment of a Chief Metaverse Officer is good first step, demonstrating a strategic interest in the space. But other major studios remain cautious and distracted, with limited capability beyond licensing to engage in the metaverse for the next 24 months and possibly longer.
Meta will need to provide a strong guiding hand creatively and technically to ensure its new partnership with NBCUniversal is a success, and to evangelise the metaverse and its revenue model across the Hollywood studio content space.
In the UK, carriage on Sky Q will give the new service the opportunity to prove its worth to viewers. Without integration with the UK's biggest pay-TV platform, growing scale is difficult for nascent DTC services.
Elsewhere in Europe, Discovery seeks to bundle too. Unlike the US, where the company has a single model—basic cable—in Europe it operates both free-to-air and pay channels, and it also owns Eurosport.
Ultimate success will come down to whether Discovery's "real life content" is essential and defensible. Generally there is little evidence of people taking services that are not broad, while the barriers to entry for competitors wishing to commission "real life content" are lower than other genres.
There are some reasons to be cheerful about Vodafone right now—small nuggets of encouragement in its H1 results and the prospect of some market repair in the UK. Annual in-contract price rises of CPI + 3.9% across the UK mobile sector could provide very valuable support.
German fixed momentum is a low-light of its H1 results with growth of just 0.6% in spite of heightened broadband demand and in contrast to the 5% growth rate of the Liberty Global assets at time of acquisition.
The IPO of Vodafone’s towers business remains imperative to maintaining its leverage targets and dividend. We estimate that it will need to sell at least 30% of equity and realise a hefty multiple in challenging market conditions.
With a lack of live sport, the lockdown weighed on incumbent pay-TV platforms’ subscriptions. SVOD providers leveraged their cheap positioning—Netflix and Amazon Prime Video now rank above other subscription services in Europe, and Disney+ had a successful launch.
Incumbents—Sky, Canal+, Movistar+—all pursue a twin-track strategy. They are positioning themselves as gatekeepers thanks to service bundles, while redirecting resources away from sports towards original series.
European productions are increasingly garnering audiences outside of their home markets, regardless of the production language. Netflix is a major conduit for European exports, due to personalisation of the interface and high-quality dubbing.
Growth deteriorated by 3.5ppts, with the UK the weakest and Italy most robust thanks to its early onslaught of COVID-19, usage pickup in a largely pre-pay market and reprieve from a particularly competitive environment.
More operators (Orange and Telecom Italia) cut their guidance at the Q2 results and others (Deutsche Telekom and Iliad) sounded a note of caution regarding the likelihood of them reaching their full year targets.
The outlook for next quarter is mixed—roaming revenues will be even harder hit and competitive intensity is bouncing back but where usage has been depressed it will begin to recover well post-lockdown.