Sky Italia’s latest strategy presentation to investors focuses on a number of positive revenue-generating and cost-cutting initiatives it is taking in the Italian pay-TV market

Sky Italia is taking a disciplined approach to subscriber recruitment and upsell of optional products as it anchors its brand at the upper end of the Italian entertainment market, supported by proactive development of original content, advertising sales and IPTV distribution

Growing product penetration has helped to reduce churn and support ARPU growth, but Sky Italia’s ability to arrest subscriber erosion and return to growth in fiscal 2015 and beyond also depends on the degree to which the economic climate becomes milder, as expected by forecasters

2014 has been a good year for total advertising, which we forecast to grow by 5.5% across the year; display advertising spend is also forecast to grow by over 6% year-on-year. This is largely thanks to a positive economic backdrop, where we have seen a significant rise in consumer expenditure over the last two years

Online advertising spend has been the biggest recipient of growing ad spend, with 20+% growth last year, this year and next. This has mostly been to the detriment of print revenues, where online classified search solutions, amongst other factors like declining circulation, have disrupted print marketplaces

Video has been the largest growth area in internet advertising as online video consumption increases. Up to now online spend has largely been accretive to TV budgets but we are starting to see some advertisers switch to online video spend. However we do not expect TV to suffer in the same way as press

The shift to mobile continues, with the smartphone replacing the laptop as the device with the most users, although the rate of tablet adoption has slowed somewhat.

This shift will change the online revenue mix, with mobile being better suited to content, native and video advertising than traditional display and search. Mobile devices also now account for the majority of visits to retail sites, and more than a third of spend online.

We see large age-based differences across all internet activities, but the split is particularly significant for smartphone adoption and usage, with only a quarter of over-55s using smartphones, and only a third of those reporting downloading apps.

Auto is the third category in our annual series of reports on UK classified advertising, following UK classifieds and recruitment category outlook [2014-094] and Property classified advertising [2014-098]. In this year’s report we analyse the key drivers in the communications marketplace for used cars, notably transaction volumes and pricing. Overall the auto market is relatively buoyant, with the post-recession new car sales boom starting to feed into used car revenues in 2014, although the sustainability of this credit fuelled growth is far from certain. Auto Trader remains the big beast in the marketplace after Guardian Media Group sold its 50.1% stake to Apax Partners earlier this year. Apax will likely be considering an IPO or sale, particularly as market conditions look favourable in 2015 and Auto Trader’s strong leadership position looks largely unchallenged.

Property is the second category in our annual series of reports on UK classified advertising, following UK classifieds overview and recruitment outlook [2014-094] and with autos to follow. Our property market report analyses the key drivers in the communications marketplace for UK domestic property, notably transaction rates and house prices, but also substantial developments in government policy. We analyse the estate agent marketplace and drill down into expenditure patterns for property advertising across all media, and provide five year forecasts. We also look at the online property advertising markets in Australia and the USA to gain a broader perspective on potential developments in the UK. Here, the competitive battle between Rightmove and Zoopla continues; estate agents' plans to stem the duopoly’s pricing power with the launch of a new portal in January will struggle to achieve consumer momentum unless there is a huge marketing investment.

Our annual series of reports on expenditure on advertising in the classified verticals of jobs, property and autos, kicks off with an overview of the print-to-digital transition that lifted the share of digital to over 50% in 2013. In summary, digital consumers are becoming more sophisticated and mobile traffic growth is accelerating. We thus expect classified services to be under pressure to innovate more in the next two to three years, particularly with improved mobile offerings. Zoopla Property Group, Rightmove’s rival in the UK online property duopoly, floated on the LSE in early 2014; both companies retain healthy growth prospects with pricing power stemming from a lack of credible competitors. In contrast, Guardian Media Group announced the sale of its 50.1% stake in Auto Trader to private equity group Apax in January. However, as the used car market starts to recover, the timing could be right in 2015 for Auto Trader to come back to the market in some form.

Our recruitment segment analysis focuses on the UK labour market’s continued improvement in 2014 while the outlook for 2015 and 2016 is still broadly positive. At the same time, the online recruitment market remains highly fragmented. On the advertiser side, the myriad of companies and positions being filled splinters the online market across a number of job boards while aggregator Indeed and professional network LinkedIn continue to grow market share. On the jobseekers side, professionals are increasingly being drawn to LinkedIn. We also see significant potential for category specific professional networks in certain recruitment verticals to continue building audiences and start attracting employer expenditure on recruitment advertising. LinkedIn has emerged as the biggest online supplier in the UK and exercises a degree of pricing power due to its audience scale, although competition remains intense. We project annual growth in online expenditure on recruitment to range between 4-8% to 2017, returning the total recruitment advertising market to low single digit growth as online gains gradually start to outstrip decline in print.

The Sky Deutschland platform, which will fall under BSkyB’s control by mid-November, continues to post strong subscriber growth, thanks to steady gross additions and declining churn

However, average revenue per user remains flat year-on-year, and declined sequentially for the first time in over four years, raising questions about Sky’s capacity to sustain the recent pace of total revenue growth

On current trends, cash flow break-even will not happen before the last quarter of calendar 2016, months before the possible price hike from a new domestic football rights auction. Meanwhile, deployment of Sky’s connected TV services appears to be keeping OTT competitors at bay

Recently we attended the inaugural IABUK Digital Upfronts, in which 11 digital media companies pitched their wares to advertising agencies and advertisers.

UK growth in internet advertising is now powered by mobile, social and video, and these three areas were the focus of the Upfronts.

The Upfronts are symbolic of the rising importance of digital media in the UK and worldwide; while broadcast television remains the king of brand advertising, marketing and advertising are becoming less TV-centric.

In the last few days we have spoken to key authorities in advertising in the US, UK and Europe.

We have been exploring the critical debate: the degree to which TV consumption and TV advertising are shifting and will shift to digital. Recent media coverage has argued traditional TV business models could start to unravel in the medium term. We disagree.

Q1 2015 results show steady underlying revenue growth in retail subscription and increases in other segments, along with the continuing extraction of cost efficiencies, resulting in an 11% year-on-year increase in Q1 operating profits

Quarter-on-quarter, Q1 2015 retail subscription revenues and ARPU were flat in spite of the strong uptake and growing use of connected products. Main causes appeared temporary - a mixture of seasonal factors and the launch of Sky Sports 5 with its two-year free broadband offer - while underlying growth remains firmly positive

Meanwhile, Sky’s accelerated investment in connectivity during 2014 is bearing fruit. Eyes may be focused on the formation of the “new Sky” (on schedule for November) and the long awaited Premier League auction, yet other developments such as Sky Store and Sky AdSmart also deserve full attention