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

European mobile growth was essentially zero year-on-year—a significant improvement thanks to annualisation of the pandemic but there is little evidence of the reversal of its negative impacts.

Italy saw the biggest improvement in its underlying trend as the pandemic continued to suppress Iliad’s momentum, while elevated competitive tension in Spain and France ate into their annualisation boost.

Mobility and flight data suggests that Q3 will evidence a bigger boost from renewed travel than in Q2—positive for roaming revenues—but that the improvement in mobility will be weaker than in the June quarter.

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.

The last lockdown caused service revenues to dip again to -7% in spite of some easing of roaming pressure and the annualisation of some early pandemic weakness.

The heralded, elevated in-contract price rises will fail to drive higher growth this year due to lower inflation—we estimate zero impact at BT/EE relative to 2020 and a reduction in revenue momentum of around 0.5ppts for each of the other operators.

The annualisation of the first lockdown is the most meaningful upside from here with a boost of around 5-7ppts possible. However, some pandemic upsides will also unwind, notably lower churn and enhanced B2B demand with the latter vulnerable to the end of furlough support and the economy.

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.

Europe’s larger MNOs are falling over each other to demonstrate support for OpenRAN, which has become a primarily operator-driven standards initiative, with governments also firmly behind it.

This is driven by a desire to improve equipment interoperability from the current de facto monolithic standards, improve supplier diversity, and ultimately drive down cost.

While some movement towards interoperability is perhaps overdue, OpenRAN is not a panacea, and some trade-offs between price, performance, supplier diversity and reliability have to be accepted.

Spotify paid $5 billion in royalties last year to the music industry. Critics claim the $0.0038 per-stream average royalty rate is too low. However, this is largely due to high volumes of ad-funded listening, a core part of Spotify’s freemium model, and a defence against piracy. 

To silence the critics, the “Spotify Loud & Clear” site presents data on the distribution of industry royalties, which are heavily skewed to established artists. Only the top 5% of artists generate annual industry royalties above $1,000, though they take home less under their deals. 

The remaining 95% of artists on Spotify generate under $1,000 a year and use the platform mainly to reach fans that attend live gigs, their primary source of income, now halted by the virus. These artists’ problem is digital discovery, as Spotify’s playlists push hits rather than the midlist. 

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.

The digital transition is almost complete in France, five years after the launch of DTT. After undergoing an audience share decline, TF1's share is stabilising. In contrast, M6 improved its audience share during the transition. Both groups are likely to remain dominant in the FTA TV market, thanks to the partial withdrawal of public TV from advertising sales

The advertising recovery in 2010 was strong. Thanks to its diversification, M6 is less exposed to the cycle than TF1, which is rebounding more strongly. M6 is also structurally more profitable

Pay-TV platform growth has stalled, with subscription decline at Canal+ somewhat balanced by growth of low cost packages of IPTV providers. Canal+ will benefit from the withdrawal of Orange from premium TV and a new distribution deal with Orange. Combined with the roll out of new set-tops with PVRs, we are moderately optimistic on Canal+ prospects