Australian Advertising Market Outlook 2020 \ Why NBN fibre expansion will disrupt a lot of industry plans \ Warner Music Group IPO: A bet on streaming











Welcome to the Venture Insights newsletter!
In this week’s edition, we look at the following:


  • Australian Advertising Market Outlook 2020: COVID-19 impact will flow into FY21
  • Commentary: Why NBN fibre expansion will disrupt a lot of industry plans
  • Warner Music Group IPO: A bet on streaming








Australia: mobile video streaming services by popularity (March 2020)



Source: Venture Insights Consumer Survey




Australian Advertising Market Outlook 2020: COVID-19 impact will flow into FY21



Change in digital advertising revenue by subsegment, 2009-2020



Source: Venture Insights



The story of the year is obviously the impact of COVID-19 and the associated economic slowdown. The ongoing GDP contraction forecast by the Reserve Bank means a slightly worse total AdEx performance in FY21 than FY20. But growth takes off strongly in CY21 (if RBA forecasts are right), though this will again moderate in FY23.

The reported -6.8% decline in FY20 AdEx will, we forecast, be followed by a further contraction in total ad expenditure in FY21 on continued economic weakness, with growth returning in FY22. However, between FY19 and FY24 the industry will still achieve a positive CAGR.
The report forecasts AdEx by segment to FY24, providing expenditure forecasts for:

  • Television, split between FTA, BVOD and Pay

  • Print, split between Newspapers (Metro and Regional) and Magazines

  • Radio

  • Outdoor

  • Cinema

  • Digital, split between Search, Classifieds and Display and between Mobile and Desktop

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COMMENT: Why NBN fibre expansion will disrupt a lot of industry plans



Total NBN fixed-line premises in Australia – speeds potentially available



Source: NBN Co Corporate Plan 2021



The NBN Co’s announcement yesterday that it will expand its fibre rollout in both consumer and enterprise markets is a two-pronged move against the three incumbent mobile network operators (MNOs) and their (and Vocus’) enterprise businesses.

There is an offensive prong and a defensive prong. The offensive prong of NBN Co’s announcement is an aggressive investment in enterprise fibre. This is despite persistent arguments from Telstra, Optus, TPG and Vocus that NBN Co’s enterprise fibre push was duplicating their infrastructure, and should instead be rolled out only where “complementary” to the fibre incumbents’ existing networks.
Rather than back down, NBN Co has upped the ante. Its Business Fibre Initiative will offer wholesale symmetrical speeds from 10 Mbps up to 1 Gbps on-request to more than 700,000 businesses in 240 Business Fibre Zones, including 85 Business Fibre Zones located in regional areas. It will also reduce wholesale pricing by up to 67 per cent for businesses in Zones outside metropolitan centres, bringing them into line with CBD prices.
As annoying as this is for the enterprise fibre incumbents, this move makes a lot of sense for NBN Co. A comprehensive, national NBN enterprise fibre network allows the NBN Co to support new enterprise-focussed retail service providers (RSPs) and managed service providers (MSPs) who are much more likely to evangelise the enterprise segment for NBN Co. And in the final analysis, Telstra, Optus, TPG and Vocus  still be customers for NBN Co enterprise connectivity outside their own fibre network footprints. The NBN Co’s expansion of its enterprise fibre network adds upside without any significant downside.
The defensive prong is NBN Co’s move to expand consumer access to GPON fibre (on an opt-in, user pays basis) where the MNOs have been threatening to offer 5G fixed wireless in competition with NBN services. The fixed wireless threat is nothing new, and NBN Co has factored wireless competition into its corporate planning for a decade. However, the arrival of 5G has increased the threat.  We have been predicting rising competition for NBN fixed broadband subscribers as the mobile network owners (MNOs) try to maximise returns from the 5G mobile investment by launching 5G fixed wireless. Optus has been offering 5G fixed wireless broadband since late 2019, and Telstra’s announcement in August 2020 that it will follow suit is stepping up the pressure. We expect TPG to follow once it announces its 5G strat egy. 
NBN Co is adopting a strategy we have also seen in New Zealand, where fibre wholesalers like Chorus pushed into Gigabit speed offers in 2016, partly to differentiate themselves from fixed wireless competition. These offers demonstrate the superiority of the fixed network as a bit-hauling infrastructure, but the limitations of NBN Co’s FTTN network has held back its ability to market 100+Mbps speeds – until now.
As a result, the appeal of 5G fixed wireless will be confined to low usage customers with limited bandwidth requirements. This is a rational outcome for fixed wireless, which has higher per-bit traffic costs than fibre, but it also blunts the fixed wireless assault on the NBN.
On balance, we see NBN Co offering more of a threat to Telstra, Optus, TPG and Vocus  than the other way around. NBN Co’s inroads into the enterprise connectivity market are pushing prices down, and having  a significant negative effect on revenue growth. In our recent Australian Telecommunications Market Outlook, we forecast Corporate Data and IP (Enterprise) revenue will fall -3.6% CAGR 2019-23, mainly due to growing competition in enterprise connectivity. For further details on the future of Australian telecommunications, click here to read the report.  

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Warner Music Group IPO: A bet on streaming



Revenue growth in the three ‘majors’ recorded music business (index=2015)



Source: Company reports, Enders analysis



Investors warmly welcomed WMG’s IPO of non-voting shares in March, valuing the company at US$12.8b, a 388% increase in the company’s valuation since Len Blavatnik acquired it in 2011.

Investors are placing a bet on music streaming. WMG’s strength in the US market due to R&B and Hip-hop in its catalogue allowed it to outperform UMG and Sony on recorded music over 2015-19, an advantage that will dissipate when growth shifts to emerging markets.
COVID-19 impacts explains WMG’s 6% decline in recorded music revenues for calendar Q2 2020, despite an 8% rise in digital revenue, as revenues from physical sales (vinyl and CD) sank, and also those from artist services due to the halted 2020 live music season. Click here to request the report.

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