2014 saw a fall in profits as BSkyB absorbed the £217 million step-up in the annual cost of PL rights and invested £60-70 million in accelerating growth in its connected offerings, but with strong underlying revenue growth pointing to a resurgence of profits in 2015

The annual results release was over-shadowed by the news of BSkyB’s proposal to create Sky Europe through the acquisition of 21C’s shares in Sky Deutschland and Sky Italia, where it sees great opportunities for revenue growth and cost synergies

Taking on a large increase in debt to finance the acquisitions when the next PL auction is about to strike sends out the message that BSkyB management is confident about the state of its business, has a clear view about the value of PL rights, and will not be side-tracked from the pursuit of its broader strategic objectives

European mobile service revenue growth improved to -7.6% in Q1 2014 from -9.0% in the previous quarter, but most of the improvement came from a drop in the regulated MTR cut impact, with underlying growth only improving 0.2ppts

This is in spite of continued improvements in GDP growth and the highest level of consumer confidence in six years, confirming that the often-blamed economic conditions actually have been having little impact on the market, with competitive intensity the real cause

For this very reason, the approval by the EC of in-market mergers in Germany and Ireland has been warmly welcomed by the industry and investors. Our view is that market repair is dependent on a change of attitude of the incumbents towards long term investment and away from chasing short term subscriber share via price discounting; consolidation may well help with this, but it is neither necessary nor sufficient

The ongoing digital migration and the resulting audience fragmentation have led to rating losses at RTL and ProSieben, but with the latter retaining its younger viewers. From a low base global operators are gaining share

Leveraging their high market shares within a benign economic environment means RTL and ProSieben are in a position to withstand the increasing competition. ProSieben has been more active in developing diversification businesses – on which we have mixed feelings

The main extra growth prospects are in the distribution fees charged to TV platforms for HD channels, allowing a progressive shift to a mixed funding model

European mobile service revenue growth again disappointed in Q4, dropping slightly from -8.9% to -9.1%, with underlying revenue growth dropping a little further from -6.0% to -6.3%, again reaching a record low

There had been hopes that improved GDP growth would drive a volume rebound, that price declines would start to annualise out, and that declining out-of-bundle usage would wane in its impact as this usage declined. In the event, ongoing price competition from smaller operators, MVNOs and quad play offerings, combined with surging use of OTT communications platforms, have dominated trends

In the medium term, the development of 4G and Vodafone’s Project Spring may bring some much needed network differentiation back to the market, allowing pricing power to return to the larger operators. However, it will be 2015-2016 before these factors come into play: in the short term, the main source of optimism is consolidation

In 2013 Sky focused on recruiting ‘quality’ subscribers: net additions fell but ARPU growth accelerated and most new customers have signed up to two-year contracts, which will lead to a reduction in churn

Now Sky is moving its focus back to subscriber growth. It aims at 400-450,000 net adds this year, including the migration of wholesale DTAG customers – a target we find realistic. The €70-90 million EBITDA guidance may be conservative

Without any direct competitor, Sky is rightly enhancing its all-in-one premium appeal. This supports ARPU growth and increases its distinctiveness compared to other providers, including the expected Netflix launch in Germany