Weak Q2 commercial viewing figures fuelled stories that ITV1 NAR could be approximately £100 million lower in 2005 unless audience share rallied in H2 2004. This was due to the Contracts Rights Renewal (CRR) remedy, imposed by the Competition Commission as a condition for the merger of the Carlton and Granada sales houses to create ITV Sales, which now controls over 50% of television advertising sales.

Ofcom produced a tough and rigorous document on ITV licence fee renewals. Although the paper is dense and difficult to understand, we think it is bad news for ITV. The likely licence fee settlement is going to be higher than commentators might have expected six months ago. The prime reasons are Ofcom’s proposed move to assessing the ‘digital dividend’ on the basis of digital viewing, not households and, second, taxing the benefits of the lower costs of the merged ITV business. The first of these is the more important financially since only about 57% of ITV viewing in digital houses is of the digital ITV service.

We have long been sceptical of claims that music download stores like iTunes, combined with hardball legal tactics against pirates, would rapidly turn around the fortunes of the music industry. The wildly successful iPod has driven the growth of digital music downloads, and is expanding the population of music downloaders that pay for music - but not forced a change of heart by file sharers! Music download sales are expanding but not fast enough to balance the decline in physical formats. Globally, we project sales of music downloads of $3.5 billion by 2010, about 10% of the total music market.

Online advertising outperformed other media in 2003 in the three biggest European markets of the UK, Germany and France, a trend which we expect to continue in 2004-06. Paid search has been the principal driver of growth in the UK market (up 70% in 2003), but interest of advertisers has cooled as steep price rises have reduced its cost effectiveness as a customer acquisition tool. Paid search is taking off in France and Germany, and will fuel growth in 2004-06.

The structure of the UK broadcasting industry will be hugely influenced by the timing of the analogue switch-off. It will particularly affect ITV, whose licence fee is set by reference to the percentage of the population able to receive digital signals.

The unveiling of new handheld gamers at E3, the games industry's annual gathering in Los Angeles, has resuscitated interest in the fast maturing market for handheld gamers. Sony's PlayStation Portable (PSP), Nintendo's dual-screen GameBoy and Nokia's redesigned N-Gage QD are major product plays for companies that must each prove themselves again to be innovative or continue to decline.

UK digital TV (DTV) growth is rocketing ahead, but how fast? Ofcom and BARB – the two ‘official’ sources – agree that growth has been faster since Q4 2003 and that Freeview is the main reason, but are issuing increasingly divergent estimates. Ofcom is, in our view, overestimating Freeview and BSkyB homes. We prefer BARB's methods and rely on its estimate of 48.1% of UK TV homes (11.7 million DTV homes).

Happy Birthday iTunes! It is just over a year since Apple launched iTunes and the media continues to talk up the second coming of the music industry, whose saviour appears in the form of affable Steve Jobs. iTunes sold a total of 70 million tracks online in its first year, well below its target of 100 million, but a respectable showing, especially since it spawned a small flock of competitors determined to out-sell iTunes.

This in-depth report on pay-TV in France charts the course of Canal Plus and its main, but much smaller, competitor, TPS, over the period 2004-06. We anticipate pay-TV penetration will rise from 35% in 2003 to 38.7% by 2006, driven mainly by aggressive competition between TPS and Canal Plus in an improving economic environment.

This report updates our readers on the disappointing advance of online console gaming in the UK. Although the UK is the third largest video games market in the world, and was the first country in Europe to offer online gaming for Xbox and PS2, we estimate only 90,000 UK online console gamers at the end of Q1 2004 (just over 1% of 128-bit consoles sold to date).

Modest progress has been made towards consolidation in commercial radio since we last reported on the issue in mid-2003. Although the new Communications Act has liberalised the ownership rules, the potential blocking role of the Competition Commission continues to be a restraining factor in the wake of the Galaxy/Vibe ruling. That ruling found that anti-competitive outcomes could emerge even if the ownership rules were respected and it has had a chilling effect on M&A activity.