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

The commercial non-PSB sector saw strong growth in share of total TV viewing of close to 40% as the multichannel TV homes universe doubled in the 10 years between the launch of Freeview in October 2002 and completion of digital switchover in October 2012, and even higher 50% growth in SOCI (share of commercial impact) thanks to the higher commercial airtime quotas of the non-main PSB channels

Even during the growth years, non-PSB channels that were present in 2003 felt a squeeze on viewing share and suffered losses as result of numerous channel launches that added to the long tail (Squeeze 1), and strong growth in the PSB families (Squeeze 2), which saw the total PSB share among the Top 25 channels in multichannel TV homes rise from less than 80% to over 90% between January 2003 and January 2014

Today, both the PSB and non- PSB commercial channel groups face the challenge of internet connectivity and increasing population of portable screens (Squeeze 3), and they are experiencing similar rates of decline. Yet, even if overall trends look the same, non-PSB viewing trends show significant variation by channel group and genre, to be explored further in Part 2

UK radio listening remains very healthy, with the plethora of internet radio and music streaming services now available barely affecting average listening time which has decreased by only 6% (11 minutes per day) since 2008

Commercial radio has maintained a consistent 43% share over this period, but its audience is getting older, as those that grew up with it remain loyal, and the population itself gets older. In a stable and benign market, the three major players of Bauer Media, Global Radio and UTV Media are focussed on increasing audiences, multi-platform propositions and digital opportunities

DAB growth remains slow, although the recently advertised national commercial multiplex may provide the impetus DAB badly needs, as it will allow for the launch of up to 11 national digital stations. Bauer, UTV and Arqiva have announced a new consortium to apply for the licence, and we believe Global is also looking to form a consortium

The UK’s love affair with mobile devices continued in Q1 2014, with four times as many smartphones and tablets as PCs shipped during the quarter. Smartphones now account for three quarters of mobile phone sales, and shipments of tablets exceed sales of PCs, though the latter improved during the quarter

The device mix for internet access is changing rapidly: more people now have a smartphone than have a laptop in the home, though the overall PC audience (including desktop) is still larger. For many people, smartphones are becoming the core device to get online, and almost half of all households have a tablet

Commercial revenues derived from mobile devices still trail their share of internet usage but the gap is closing: in Q1, smartphones and tablets generated a third of e-retail sales, while mobile ads represented a fifth of internet search and display advertising

The British Video Association has released full year figures for 2013 for the UK home video market, which reveal that growth in digital video, especially in over-the-top subscription services e.g. Netflix, offset the fall in spend on physical media last year, reversing the previous downward trend

The bad news is that DVD’s decline is set to quicken, as the number of households with stand-alone players has begun to fall, though there should be some respite this year from sales of huge box office hits such as Disney's Frozen and Warner Bros.' Gravity

Ultimately, we see rising penetration of high speed broadband and connected devices including the TV set as a net positive, as more people have more ways to spend money on video, but the shift from purchase to rental and subscription options will mitigate the benefits

After a three-week long “messy and opaque” high drama auction Sky retained its broadcast rights for all Italy’s Serie A games for 2015-18 with a negligible 1% price increase.

Its rival Mediaset managed to keep hold of the top fixtures, but its coverage shrinks by 18% whilst paying 35% more. A deal earlier this year for the Champions’ League rights will add considerably to Mediaset’s total costs.

In the stagnating Italian economy, Sky may manage a return to more comfortable profitability. Mediaset’s pay-TV business model looks much more challenging, even if a new investor were to be lured in.

Ofcom’s fibre margin squeeze test’s initial indicative assessment concludes that BT’s current wholesale/retail pricing is ‘close to the boundary’ of creating a squeeze on its competitors

While BT can take comfort that it is at least close to passing the test, its DSL competitors (Sky, TalkTalk et al) can take comfort that BT cannot make life materially more difficult for them without failing it

Crucially, the costs of BT Sport are included in the test, so BT is now heavily dis-incentivised from further aggressive bids for sports rights, which is positive news for the prospective cashflows of both Sky and indeed BT itself

Amazon has announced a new smartphone, the Fire Phone – a premium-priced device with some unique features and solid hardware; only available in the US at first, its high price and small number of apps limit its appeal

Although initial sales are likely to be low and mainly confined to Amazon Prime members, in the short term the purpose of Fire Phone is simple: to drive increased mobile sales of everything Amazon sells

In the longer term, Amazon needs to avoid being locked out of digital media purchasing on smartphones, increasingly the primary connected device – this is a first, although insufficient, step in that direction

National newspaper advertising fell 8% last year (and by 28% since 2007), but we believe a stronger economic outlook will slow the decline in 2014 to about 6%, even if volatility month-to-month makes budgeting and management a relentless challenge.

The local and regional press should also experience some—but smaller—reprieve, though the sector will continue to haemorrhage national display advertising, so the sector focus must return to local enterprises.

Digital advertising has reached meaningful scale at some titles, but growth in online display is slowing. Platform sales are growing quickly and are essential to resist the devaluing of context for digital marketing in content media.

Market revenue growth in the UK residential communications sector was surprisingly robust in Q1 2014, rising a touch to over 5% (or around 4% excluding the direct impact of BT Sport) from just under 5% the previous quarter, despite facing a number of headwinds

Revenue growth at the top four operators has converged to around 4% for all, which marks a major long term turnaround for BT and TalkTalk, who back in 2012 were both experiencing firmly declining revenue well below market growth, and have since done much to stabilise their subscriber bases and sustain ARPU growth

Looking forward, we expect that BT will continue to do well in the June quarter given Sky’s continued focus on TV products, but thereafter its focus may change, and whether BT's recent competitive boost from fibre will continue growing is uncertain. Having said this, any likely market share shifts are relatively minor in the context of the market, with the general theme likely to remain that the rising tide is lifting all boats