Foxtel SVOD growth can’t disguise pay TV decline\ Hunt for revenue and margin will drive 5G fixed wireless, mobile wholesale pricing review\ Art of the deal – Microsoft swoops for TikTok\ O2 UK: COVID and loss of Carphone bite Sky UK Q2 2020 results

 

 

 

 

 



 

 

 

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

 

  • Foxtel SVOD growth can’t disguise pay TV decline
  • Hunt for revenue and margin will drive 5G fixed wireless, mobile wholesale pricing review
  • Art of the deal – Microsoft swoops for TikTok
  • O2 UK: COVID and loss of Carphone bite
  • Sky UK Q2 2020 results

 

 

 

CHART OF THE WEEK

 

 

Foxtel broadcast pay TV ARPU (A$) 



 

 

Source: News Corp results 

 

 

 

Foxtel SVOD growth can’t disguise pay TV decline

 

 

Prices for Australian sporting packages (A$)



 

 

Source: company websites 

 

 

Foxtel’s full year results are still dominated by traditional pay TV, and that is a problem. Subscriptions to Foxtel’s Kayo sports streaming service grew, and early takeup of its Binge entertainment service is encouraging. But these gains are not enough to offset large subscriber losses in the traditional pay TV business. While pay TV ARPU has stabilised at A$78 after years of decline, this high pricing is still driving customers to cheaper streaming VOD services.

Kayo subscriber growth was disappointing due to many sporting fixtures being cancelled, but a rebound is likely as sporting codes recover.
But cost cuts are biting, signalling a new broom. Foxtel let go 17% of its full-time, part-time and contractor workforce in FY20, and management have signalled there is more to come. Persistent decline in the core pay TV business means that painful adjustments, including channel rationalisation, staff cuts and programming renegotiations are now inevitable. Click here to read our report.

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Hunt for revenue and margin will drive 5G fixed wireless, mobile wholesale pricing review

 

 

FY20 Telstra key financials (A$bn)

 

 

Source: Telstra FY20 earnings announcement and presentation

 

 

Pricing pressure is evident all over the telco industry. Telstra’s announcement yesterday that (like Optus) shows it is keen to promote 5G fixed wireless as an alternative to low-margin NBN products. We don’t expect these services to be sold at a discount to NBN products, but this will still put additional competitive pressure on nbn Co takeup. We expect TPG to adopt the same strategy, turning up the heat considerably. Nbn Co has a target ARPU of $49 by FY23, up from $45 in FY20, and 5G fixed wireless will certainly make that harder. We note however that nbn Co also has a penetration target of only 75%, suggesting they have already factored in some future subscription losses to 5G.

Belong’s success was the standout of the Telstra results, but it’s not all good news. The bulk of new fixed and mobile adds are being picked up by the low-priced Belong brand, so ARPU and margin are being hit. But Telstra has few options. It must respond to offers from low-priced competitors.  Our consumer survey work shows that consumers are looking for good deals, and this will only be exacerbated by the COVID-19 economic downturn.
One option it will be considering, as will all of the mobile network operators, is a review of mobile wholesale pricing. We think Telstra’s recent retail mobile price rises will not be the last in the industry, and if retail prices are nudging up, it makes sense to do the same with wholesale prices that underpin MVNO retail pricing. We will be releasing our detailed views on the NBN/Telstra results and the Fixed Wireless Broadband substitution market in upcoming report.

 

 

Art of the deal – Microsoft swoops for TikTok

 

 

 Cumulative downloads of  social apps, 2018-2020 (m)



 

 

Source: Enders Analysis, company reports

 

 

Microsoft hopes to buy TikTok from Chinese owner ByteDance before President Trump’s Executive Order halts transactions with the company in mid-September. Twitter is now in the game, but is unlikely to prevail. Worth tens of billions, TikTok would be the biggest acquisition in Microsoft’s history. This hot new digital platform has hundreds of millions of users and an ad business that could overtake Snapchat’s. Extracting the technology from ByteDance may take years. Selling TikTok to shake off anti-Chinese scrutiny would signal ByteDance’s abrupt exit from the digital world stage with a fabulous return on its investment, while letting TikTok users continue to enjoy the service. However, losing TikTok sinks the global growth story that ByteDance was lining up for its anticipated IPO. For more details, click to read a report from our UK research partner, Enders Analysis.

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O2 UK: COVID and loss of Carphone bite

 

 

OIBDA, revenue, and mobile service revenue growth



 

 

Source: Facebook, Enders Analysis

 

 

Along with the rest of the mobile market, O2’s results were harder-hit by COVID than expected, with service and total revenues down by 9% and 4% respectively. O2 estimates an 8ppt drag on revenues from COVID—much higher than the 1.6ppt Vodafone figure—a question of definition and business mix. The overall COVID impact on the market looks to be tentatively easing from next quarter and O2 should fare relatively well in that bounce-back. The decision to terminate the Carphone Warehouse relationship will cause some short-term technical drags on performance but creates an opportunity to improve profitability. Reopening of O2 stores post lockdown will help to compensate for forfeiting Carphone as a route to market. For more details, click to read a report from our UK research partner, Enders Analysis.

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Sky UK Q2 2020 results

 

 

Sky direct-to-consumer revenue YOY growth



 

 

Source: Enders Analysis, company reports

 

 

Sport is back, but its recent hiatus amid the COVID-19 crisis hit Sky hard, with Q2 revenue plunging 12.9% year-on-year. EBITDA remains flat for now, with sports rights cost absorption postponed but not cancelled. Sky updated its EBITDA guidance to -60% across H2, reflecting increased costs from a condensed sports schedule and a return to planned investments, as well as continued weakness in advertising and pub revenues. Meanwhile, Sky marches on with new branded channel launches in the UK. On the Continent, the successful renewal of German Bundesliga rights provides some certainty, of which there is none in Italy for either the Serie A or the Champions League. For more details, click to read a report from our UK research partner, Enders Analysis.

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