Growth in European content supply may soon reach a tipping point as streamers shift from market grabs to profitability, while resources poured into production from states, consumers and advertisers are declining

The perceived value of long-form video content is dropping as consumers pay smaller amounts for a greater volume of choice, from which they are watching less

However, factors converge to prop up the European independent model: broadcasters’ resilient financing, the public favouring ‘deep’ local fare, talent’s preference for independents, market consolidation and new EU regulation

Mobile growth dipped again to -3.3% for what we hope is the final time as widespread lockdowns impacted paid-for usage in most countries.

BT and Vodafone joined the other European MNOs in guiding to improving trends in 2021—expecting EBITDA momentum to be 7-10ppts better—slightly ahead of the 5-7ppts for the European operators.

We may even see positive revenue growth next quarter thanks to the simple annualisation of the first lockdown, with the UK the most to gain and Germany and Italy the least. Investment is creeping up too with higher capex guidance and better 5G momentum.

Advertising income has been the lifeblood of commercial TV for decades, but declining linear audiences—combined with digital video alternatives—mean the TV advertising model must evolve to ensure it remains as potent a medium for brands as ever.

Lack of effective audience measurement and somewhat opaque advertiser/agency/sales house relationships are hampering linear TV advertising revenues. Both issues need resolving to underpin a healthier ecosystem overall.

Flexibility is key to this evolution. A move to audience buys across most linear and BVOD inventory would provide greater flexibility and targeting for advertisers, and would sit alongside some premium context buys. A greater onus on volume deals would give broadcasters more certainty to invest in content and their advertising propositions.

Mobile revenue growth improved slightly to -3% this quarter, primarily thanks to a weakening in the drag from the loss of roaming.

European MNOs are guiding to improving trends in 2021—broadly stable revenues and EBITDA vs declines of 5-7% in 2020. This bodes well for guidance from the UK players around mid-May.

However, the outlook is far from rosy, with Q1 2021 still very challenging ahead of an annualisation of the pandemic drags from the June quarter. Growth prospects remain contingent on the resumption of travel and the economic climate.

Despite relying on a narrow IP base, US content production is booming, overwhelming other markets and seeking alternative distribution to cinema.

Responding to the rise of Netflix and Amazon Prime, studios seek to shift distribution from wholesale to retail—but only Disney may succeed.

Most content is likely to remain accessed by consumers through bundles. Provided they engage with aggregation, European broadcasters can adjust to the new studio model.

Mobile growth improved very marginally to -3.6% this quarter as roaming revenues were harder hit and competitive intensity bounced back, but usage recovered from the lockdowns in Q2 and cuts to intra-EU calls were annualised.

Italy’s fortunes took a turn for the worse as roaming hit particularly hard and Iliad resurged. After a spate of downgrades to the outlook last quarter, there were some tentative upgrades in Q3 although the tone remains cautious.

The diminished drag from roaming is the primary positive driver from here. Although lockdowns of some degree are in place in Q4, their impact will be less severe than those in Q2.
 

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.

Over the past few months we have outlined the evolving challenges that the pandemic has presented broadcasters—from plummeting ad revenues and production stoppages, to increasing SVOD viewing share

Now, however, is the time to shift thinking towards what can be taken forward from this time. There are strategies that were launched through necessity that will provide continued value beyond this period

The opportunity to reduce cost bases, leverage the greater reach of online services, forge better relationships with advertisers and better understand operational needs and limits presents the potential for more nimble, streetwise businesses

European mobile service revenue growth strengthened very slightly to -0.3% this quarter but, with many positive and negative factors at play, it would be wrong to conclude that we evidenced a convincing improvement in momentum.

Most operators have reiterated their financial guidance in spite of COVID-19 but there is caution from Vodafone and those exposed to sports rights (BT and Telefonica).

The outlook benefits from continued lockdown measures (reducing churn and spin-down) and the annualisation of some financial drags from the middle of next quarter. However, competition in Spain remains intense and the sector is exposed to any economic downturn.

European mobile service revenue growth improved by 1ppt to -1.2% primarily as a consequence of diminished competitive intensity in France. Trends elsewhere were largely flat.

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly neutral financial impact. Longer term it will be exposed to the fortunes of the economy.

There are reasons to believe that the improvement in trends evidenced in the last quarter may continue as churn reduction takes the heat out of some markets, cuts to intra-EU calls annualises out and for most countries, end-of-contract notifications will only begin to impact in 2021.