Advertising has outgrown the UK's wider economy by 20 percentage points since 2000 thanks to online and advertisers in export markets, especially China, targeting sales in the import-dependent UK market.

If current trends held to 2030, advertising would reach 1.7% of UK GDP, over 50% higher than 2019—we believe this to be the least likely scenario as the UK already sustains higher ad intensity than major markets.

The next recession could be the moment when online ads growth corrects and then reverts to low single-digit growth in line with the economy. A 'soft landing' is also possible, while a surprise outperformance would require more drastic structural shifts.

The United States’ America First policy rebalances the terms of trade with allies and the UK aims to secure an exemption to restore the status quo ante on tariffs

The UK is offering a deal to the United States on digital services sold in the UK that seems easier than a deal on US food products that do not meet UK regulations

The UK will have to give on the Digital Services Tax (DST) of 2% on “digital services revenues” (applied to Amazon, Apple, eBay, Meta, and Google) and soften the regulations and enforcement of Acts of Parliament  

Most regulations within the TAR26 condoc were continuations of the previous pro-investment regulations, albeit with little progress made on copper withdrawal, no extra help for the struggling altnets and a number of unexpected twists at the margin. 

Within the detail, the most significant hit is the return of cost-based price controls to some leased line charges, and across all of the proposed changes, Openreach has on balance fared worse than retail ISPs, albeit at a scale that is manageable within the BT Group.

Ofcom showed no inclination to offer any extra help to the struggling altnet industry, regarding its inefficiencies as being its own (and its investors’) problem, with consolidation the only sensible path forward for most.

Globally, subscriber growth remains the driver of topline streaming improvements—86% of Netflix’s 2024 global revenue growth came from subscriber additions, with 85% for WBD and 54% for Disney

However, in mature markets growth is underpinned by ARPU. Subs growth is becoming volatile with more customers churning in and out of services around key releases

Relevantly, the race to scale up SVOD ad-tiers will continue to have an ARPU-dilutive effect: CPMs are lower than expected and the growing price divide between premium and ad tiers will persuade more existing users to spin down 

The mid-sized UK altnets Zzoomm and FullFibre have agreed to merge, in what looks like an all-share merger of (nearly) equals, both of whom have been struggling to raise finance.

Why did they pick each other rather than the larger CityFibre/Netomnia/nexfibre options? Valuation may have been the key factor, but it has left them still vulnerably low scale with further consolidation necessary.

Much more consolidation is required for the sector to be sustainable in our view, and further financial distress may be required for realistic valuations to emerge.

The UK altnets collectively lost over £1bn in 2023, with most metrics unrealistically distant from what they need to be for a sustainable model, particularly the smaller retail-focused operators.

Consolidation is essential for survival, and CityFibre at least has a reasonable case for long term sustainability with a wholesale model and Sky as a customer, and looks the most viable altnet consolidator in our view, with VMO2/nexfibre able to pick up the pieces should the sector fail.

A lack of long-term viability and related financing difficulties will dramatically slow network roll-out, reducing the altnet pressure on the rest of the sector even if consolidation improves penetration levels.

In the next fixed line regulatory review—TAR 2026—Ofcom is likely to maintain light regulation on Openreach’s pricing levels, while also maintaining strict restrictions on its pricing structures, which both help altnets. 

On other matters, none of the interested parties (Openreach/altnets/ISPs) look like getting exactly what they want, but by and large the industry will likely get what it needs—regulatory stability with a broadly pro-investment slant.

The next TAR in 2031 is likely to be more dramatic, but by our estimates, even a full return to cost-based charging will not result in significant wholesale price cuts, which is likely to be a relief to longer term investors in BT and the altnets alike.

Both subscriber and ARPU growth are showing clear signs that they are topping out. We expect increasing volatility in both metrics moving forward as low-ARPU subscriber additions tug against price hikes and churn-cycling in wealthier regions 

Many of the studios’ streamers are now flirting with profitability thanks to cost-cutting efforts, while cord-cutting only seems to be accelerating 

Almost 50% of streamer sign-ups are opting for the ad-tier. However, it will be some time before ad-tiers become a ‘meaningful’ revenue stream

Market revenue growth was just positive at 0.2% in Q2, as lower price increases were mitigated by some temporary ARPU gains.

Growth is likely to drop negative in the rest of year however, with continued weak volume growth compounded by temporary ARPU gains unwinding.

Pricing structures differ quite widely as regards landline offers and out-of-contract pricing, and all could benefit from adopting best practice, a marginal gain worth pursuing in a tough market.
 

We forecast broadcaster viewing share to drop to 52% in 2030 (from 58% in 2023), with the firming of its on demand viewing unable to balance out the decline of live: this is a slight improvement on our past estimates, with decline slowing.

SVOD viewing will begin to plateau in 2025, as video sharing platforms (YouTube, TikTok, Twitch) take an increasing share of engagement.

On the TV set, YouTube will grow strongly: we predict a 90% increase from 2023 to 2030. This is from a low base with broadcasters retaining 70% of viewing on the main screen in 2030