Classifieds generated £5 billion in 2009, down 13.3% on 2008, accounting for one-third of UK advertising spend

The migration of classifieds from print media to online media accelerated during the recession, with no prospect of a ‘bounce back’ -recruitment has fallen 65% from its peak of £1.5 billion in 2004 to (our estimates) about £649 million in 2009 and down to £538 million in 2010

Key players do not charge on a performance basis, so online and print media retain similar charging models

Digital revenues on a like-for-like basis are discounted by 60-70% of print, with online players offering services, such as display for branding purposes or web marketing to SMEs, to add to core advertising income

Germany, the UK and France are the three largest advertising markets in Europe, worth €40.3 billion in 2009, of which €8.9 billion was spent on internet ads, 65% of the total across the continent (based on IAB Europe survey of 19 countries)

In per capita terms, the UK and Germany spend the most on advertising: in 2009, roughly €200 per head was spent in the UK and Germany, 40% more than in France

Google’s UK results and other key indicators for the first half of the year confirm that online advertising increased in line with our overall forecast for 2010

We anticipate that deteriorating consumer confidence in H2 2010 will lead to deceleration of advertising growth, including the internet – confirmed by early anecdotal feedback from agencies and ad networks

Our revised forecast for Google’s UK ad revenue is 15% YoY growth in 2010 and 11% YoY growth for UK internet ad spend to £3,800 million

The bounce back in H1 2010 advertising revenues (18% up over H1 2009), combined with extra cost savings, turned last year’s £72 million loss into this year’s £71 million profit; but could not disguise the need for transformation of a business overly dependent on an advertising model in long-term structural decline

The management’s five year goal of reducing the advertising revenue share (now 74%) to 50% echoes previous targets and the ability of the new team to deliver the goal will depend first and foremost on a revitalised ITV content production business

The agreement with Sky to launch HD versions of ITV2, ITV3 and ITV4 to Sky+ HD subscribers marks ITV’s first return to pay-TV since the collapse of the ITV Digital venture in 2002. This should not be seen as an about turn in ITV’s commitment to free-to-air broadcasting, but rather as a one off win-win opportunity for ITV and Sky

There were approximately 19 million fixed broadband lines in the UK at the end of June 2010 including those used by small and medium enterprises (SMEs)

Year-on-year subscriber growth in Q2 increased by half a percentage point, following stabilisation in Q1, the first material since the early years of UK broadband

Looking at net additions in the quarter, Q2 saw a sequential drop of 23%, the lowest Q1 to Q2 sequential decline since 2005 . Year-on-year growth in net adds, at 51%, continued to accelerate rapidly

H3G Group’s reported results claimed strong growth and rapidly improving profitability, but, taking out the effect of an accounting change, an acquisition and some one off income, underlying revenue was flat and profitability improved only marginally
The parent company is still guiding to positive EBIT from the H3G group for the full 2010 year, but this will require either further creative accounting or very strictly controlled spending on subscriber acquisition, at the expense of future revenue growth
H3G UK’s revenue fell 9% in the half, although profitability improved with very weak contract net adds probably caused by a restricted SAC budget. With demand for smartphones surging H3G UK is in a potentially strong position, but without a substantial marketing and SAC budget it cannot take advantage

Strong FY 2010 adjusted revenue growth of 11% was powered by a 15% rise in subscription revenues, reflecting a mixture of solid subscriber growth in spite of the recession and burgeoning multi-product sales, with HD subscriptions registering a net increase of 1.63 million to end the year at 2.94 million and the telecoms sector breaking into operating profit in Q4

Firm cost control and streamlining of manufacturing and subscriber management expenses now make Sky’s 25% TV operating margin target look very achievable, but also leave it room to increase spend on programming substantially within the guidance limits of pegging increases to the rate of revenue growth

Overshadowing the results is News Corp’s proposal to purchase the 60.9% of BSkyB shares that it does not already own, subject to regulatory review. Assuming it goes ahead, News Corp will have a larger market share in the UK across media (TV, newspapers and books) than any other company in a major market

BT continues to improve its performance through cost reduction, with Global Services continuing to lead the way

Although a strike appears to have been averted, the next few quarters will be tougher due to increased EBITDA ‘re-investment’

Management is sticking to guidance which is, like the government, conservative in nature. Nonetheless, in our view, the forthcoming government spending review could still prove challenging

TalkTalk Group (TTG) reported revenue growth for the quarter to June was flattered by the Tiscali acquisition, but broadband net additions were reasonable given the protracted integration process and temporary absence from TV schedules of the X-Factor

An MVNO could prove challenging in terms of generating a significant direct impact on financial performance, but might help defend against other low price players, notably O2 and Tesco

Increasing demand for pay-TV, stimulated by Sky, VMed and now BT Retail, could potentially leave TTG exposed. Our current view is that there remains sufficient demand for ‘extended’ free-to-air TV for this not to be a major issue

Virgin Media’s Q2 results showed real strength in the top line, with continuing growth in cable revenue due to increases in both price and volume compounded by long-awaited growth in revenue from mobile and B2B, although overall performance was compromised to an extent by higher costs

The sale of VMtv to Sky cements a de facto pay TV duopoly by clarifying the distinctive wholesale and retail roles of the two leading players, against which others will find it hard to compete

The outlook continues to look encouraging despite the economic environment and this is reflected in management’s plan to return £700 million of capital, a historic milestone in the history of UK cable