The London Olympics promise to be a major success for both the free-to-air broadcast licensees and the leading pay-TV platforms as a result of co-operative deals being forged between them

Recent distribution agreements with Sky provide the BBC and Eurosport with a massively bigger window to showcase their credentials in in-depth sports coverage and new technologies, especially 3D

For Sky, and assuming VMed in due course, there exist a number of potential indirect commercial benefits, as the message is sent out loud and clear that there is no better place to go for London Olympics free-to-air coverage than the pay-TV platforms

On 5 April, it emerged that Sky News had authorised a journalist to access emails on two occasions. Although Sky News may have committed a criminal offence, the likelihood of a successful prosecution is extremely slight, in our opinion

Ofcom could decide to discipline Sky News for the alleged actions; however the offence is very far from being sufficiently severe to warrant the removal of its broadcasting licence. And, in any event, it would almost certainly be Sky News that would lose the licence, not its parent BSkyB, which appears to have had no involvement whatsoever in the events revealed last week

The two previous cases in which broadcasters were judged not to be ‘fit and proper’ holders of licences involved far more severe breaches of the law or regulatory codes

In this first of two reports on TV platform growth, we consider the impact of digital convergence on the traditional broadcast channel distribution platforms. As the analogue era draws to a close, the new era of digital convergence across multiple screens and devices is gathering momentum. We assess the various forces of change, including superfast broadband rollout, the continuing growth of pay-TV adoption and the strategic resilience of Sky and Virgin Media. We provide our forecasts for TV platform penetration to 2020.

The CC seems to be preparing to reverse its provisional conclusion that Sky’s hold over premium movies is damaging competition

Sky Italia’s strategy of selling low-priced satellite packages and HD set-top boxes has sharply reduced profitability, but helped subscriber growth

Escalating per user costs of football rights in a PAYG model has dissolved the profitability of Mediaset Premium, with no real upside visible

Sky Italia and Mediaset Premium both face the strong headwinds of the long consumer recession in Italy

Year-on-year increases of 4% in total revenues, 13% in EBITA before exceptional items and positive net cash for the first time in seven years sees ITV much more strongly placed to handle future challenges post digital switchover

ITV continued to outperform the market by raising its share of TV NAR, whilst the early signs of revival in its content production business were particularly encouraging

Online still poses ITV the toughest challenges with regard to providing it with significant new revenue streams despite strong improvements in the audience metrics – an issue familiar to many

TiVo is central to Virgin Media’s strategy for building value in its cable platform, offering next generation applications and software search, recommendations and navigation instruments

The challenge of deploying TiVo across the entire VMed base within five years for a monthly charge of £5 (as of April 2012) is considerable, but promises several other financial benefits besides subscription income

VMed appears uniquely well placed among UK platform operators to develop innovative solutions, while early evidence suggesting that TiVo is affecting viewing habits significantly encourages belief that the ambitious management target can be achieved

VMed’s Q4 results were again mixed, with underlying cash flow growth hit by high capital expenditure primarily relating to accelerating TiVo box installations

But this strong take up of next generation TV, and real progress at the Mobile and Business divisions, give us confidence that the company’s strategy is working

Management guidance of further cash flow growth from the second half of 2012 is credible, though we continue to expect underlying growth to be limited

Sky’s 16% year-on-year increase in interim profits reflects strong operating efficiencies and reduced marketing costs due to the slowdown of TV gross additions in a tough economic climate, while continuing low churn underlines its product strengths

Fibre broadband deployment and the January launch of streaming-only services by Lovefilm and Netflix signal increasingly competitive conditions, but Sky is well placed and the challenges should take several years to materialise

Sky management is fully aware of the need for its pay-TV business model to evolve in the age of digital convergence, where innovation and building value are prerequisites of success, and is actively addressing the issues

With the economy drifting sideways, we have set our centre case forecasts at 0-1% average annual growth in TV NAR and assigned a low probability to a repeat of the hyper-cyclical downturn of 2008/9

Comparative international data show a pervasive long term weakness in display advertising trends across the developed world, while emerging markets in Asia, Latin America and Central/Eastern Europe take an increasing share of global budgets

With digital switchover near completion, channel viewing shares across the main commercial groups should stabilise, but internet advertising, especially online video, will exert a negative structural downward pressure on TV NAR over the next three years at least