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    April 16, 2019

    Google and game streaming: double or quits

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    Google’s Stadia promises the most credible game streaming service yet, but building a subscription bundle of top titles would require an all-out bet in the sector. Google is building its own game studios – to win over others it must overcome a troubled history in gaming, mitigating risks to developer business models and creative integrity. Games are much more technically demanding to stream than video, presenting an advantage to Google, Microsoft and Amazon – and a boost to telecoms network demand, welcomed by operators.
  • April 8, 2019

    The North heads south: European mobile in Q4 2018

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    European mobile service revenue growth dropped to -1.3% – its lowest level in three years – particularly disappointing as growth should be bouncing back post-EU roaming tariff cuts. Having enjoyed relatively favourable dynamics in 2018, the UK and Germany are facing marked changes in momentum from here. Regulation limiting intra-EU call prices could hit hard – up to 6% of revenues and 20% of EBITDA in the UK, although other EU countries may be less exposed due to lower tariffs currently.
  • April 5, 2019

    Apple’s showtime: everybody gets a service, partners get pennie [...]

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    ­­­­Apple is strengthening its household model by doubling down on family-friendly content subscriptions and payments. The model is reliant on hard bargains with mainly US partners, which risks sacrificing potential scale for a short-term boost in margin dollars. The new services offer glimpses of novel concepts, but stop short of taking risks to truly differentiate—a problem in TV, where Apple’s distribution advantage is slimmer than Oprah would have it.
  • April 4, 2019

    BBC Studios and Discovery in the UK: a new SVOD and the UKTV spli [...]

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    The split of UKTV has been announced with the lifestyle channels going to Discovery, while the balance, along with the UKTV brand and VOD service, retained by the BBC, costing BBC Studios £173 million. In the same release, a new, global Discovery SVOD “powered” by BBC natural history and factual programming was announced, backed by a ten-year content partnership. The deal is a positive step for the BBC, which safeguards against flaky brand attribution internationally and the potential loss of revenues from Netflix, which is becoming more choosy when acquiring content.
  • April 2, 2019

    UK broadband, telephony and pay TV trends Q4 2018

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    Market revenue growth accelerated to 3% in Q4, but it might never reach this level again, being helped by a never-to-be-repeated BT overlapping price rise. With price rises becoming more challenging in general, and superfast pricing under pressure in particular, maintaining/increasing ARPUs is becoming more difficult despite superfast volumes surging. Openreach’s ultrafast roll-out has accelerated, challenging Virgin Media and bringing the prospect of further price premia, but perhaps too late to be of significant benefit in 2019.
  • March 28, 2019

    UK mobile market Q4 2018: Headwinds gathering for 2019

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    Following record growth last quarter, the UK mobile market took a step down to just 0.9% growth in the quarter to December on the back of increasing pressure in the business market and the impact of out-of-bundle limits. 2019 looks set to be a tough year for the sector with: a series of potentially painful regulatory hits; markedly lower price rises than last year; and early signs of a degree of creeping competitive intensity. We view 5G as a much-needed means of expanding capacity in the sector with upsides from M2M and IoT likely to remain relatively small.
  • March 22, 2019

    BritBox’s muted arrival in the UK: ITV FY 2018 results

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    After the heights that Love Island and the World Cup took ITV to in H1, the broadcaster held on over the tougher last few months of 2018 to see growth in ad revenue (0.8%) and total viewing (linear and VOD, 3%). However, it was the announcement of the subscription video service BritBox—with the discussions around the “strategic partnership” with the BBC in its concluding phase—that garnered most interest. ITV’s investment in the service is modest when compared to its global competitors—up to £25 million in 2019, £40 million in 2020 and declining thereafter—but it is a prudent low-risk entry into what is an expanding but difficult market.
  • March 20, 2019

    Virgin Media UK: proceeding with caution as speed advantage comes [...]

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    After strong underlying 2018 results, the more subdued outlook for 2019 is an important shift, driven by regulatory pressure on mobile, higher programming costs, one-offs and softening demand. Lightning is continuing to drive market share gains in new build areas, and should provide a 2ppt tailwind to revenue growth in 2019, but enhanced visibility on the economics of rollout suggests that its conservative approach is a wise one. In existing build areas, Virgin Media is facing-off pricing pressure from TalkTalk on high speed, and potentially from BT on even higher ultrafast speeds, with it moderating pricing and launching a market-beating 500Mbps product in Spring 2019 in response.
  • March 19, 2019

    UK online advertising: Brexit year forecast and trends

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    UK online advertising spend continued its double-digit growth in 2018, up 11% to reach nearly £13bn in annual spend or 58% of the total advertising market, but a no-deal consumer downturn could nearly stop growth this year. Google, Facebook, Amazon, professional services firms and the largest marketing cloud companies are the biggest winners, while content media, media agencies and independent advertising technology firms languish. Self-regulation has improved as pressure mounts on advertising technology firms, but interventions by both privacy and competition authorities are now inevitable.
  • March 15, 2019

    TikTok’s challenge to Western social media

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    Launched to the world in September 2017, TikTok is the first Chinese app to pose a serious threat to Western social media companies as it attracts hundreds of millions of Generation Z users around the globe. Privately-owned parent company Bytedance earned $7 billion in online advertising revenues in 2018 and is valued at $75 billion, placing it ahead of Uber as the world’s most valuable internet start-up, with an IPO likely this year. Bytedance’s goal of earning half its revenue outside China by 2022 is far from certain. In order to hit the target, TikTok will need to attain super scale with best-in-class revenue per user, an unlikely combination.
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  • March 14, 2019

    Huawei and UK 5G: Identifying the risks

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    ­­­­Governments and operators have come under increasing pressure to exclude Huawei’s 5G equipment from national networks, with justifications usually kept vague and wide-ranging rather than specific, and no evidence provided. Given the role of Huawei’s 5G equipment in the network and the extent of existing testing and checking, realistic security risks that apply to Huawei and not to all other equipment suppliers are hard to conceive. The risks of any ban are however very real; with Huawei one of only three global-scale telecoms equipment suppliers, and the preferred early choice for 5G radio equipment in the UK, removing this choice will massively increase costs and delay roll-outs of cutting-edge connectivity.
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  • March 12, 2019

    The future of UK video viewing: forecasts to 2028

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    Linear TV is still a mass market medium, watched by 90% of the UK population each week. However, our latest viewing forecasts predict broadcasters will account for two-thirds of all video viewing in 2028, down from c. 80% today, due to the relentless rise of online video services. Total viewing will continue to increase as more short-form content is squeezed into people’s days, particularly on portable devices, but the key battleground for eyeballs will remain the TV screen. The online shift has already had a huge impact among younger age groups, with only 55% of under-35s’ current viewing to broadcasters. Older audiences are slowly starting to follow suit, but have a long way to go.
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  • March 8, 2019

    GDPR tested on Google, ad tech and Facebook

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    Recently issued regulator rulings on Google, ad tech companies and Facebook challenge prevailing online advertising practices of obtaining user consent under the EU’s General Data Protection Regulation (GDPR). Rulings from France on Google and ad tech partners of media owners called them out for inadequate disclosure to users, and excessive merging and processing of data. In a landmark precedent for Germany, the Federal Cartel Office found that Facebook lacked “freely given” consent from users, calling its terms “exploitative” and an abuse of its dominant position, also harming competitors.
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  • March 4, 2019

    O2 UK delivering well on many, but not all, fronts

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    ­­­­O2’s Q4 results delivered market-leading service revenue growth of 3%, double-digit EBITDA growth, sustained strong net adds and low churn. With ARPU service revenue growth flat, all of the growth came from other service revenue including M2M (machine-to-machine) and MVNO; a lumpy category up by more than 40%. Following a period of strong outperformance, O2 will face some challenges in 2019: some cost inflation to mitigate and the risk of a churn increase following December’s outage although experience suggests this is likely to be short-lived.
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  • March 4, 2019

    MWC – all very exciting but where’s the money?

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    ­­­­The combination of 5G, AI, IoT and big data were evangelised at MWC as generating massive scope for the transformation of multiple industries. That much is probably true, but it is the tech and consultancy companies who will likely receive the benefits, with connectivity revenue likely to be modest. For the operators, 5G brings more capacity much needed for hungry smartphone users, and perhaps the opportunity to transform themselves into a leaner operating model.
  • March 1, 2019

    The Next solution to ecommerce

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    Consumers have more shopping options than ever, forcing businesses to expand how and when they offer services. Online giants Amazon and Alibaba are adding physical retail to extend their routes to market. Omnichannel provides consumers an enhanced, seamless brand experience from research and discovery to purchase, delivery and after-sales, and allows businesses to react to changing consumer preferences more flexibly. Next is an omnichannel success story, introducing 48-hour home delivery in 1988 and online sales in 1999. Its market-leading fashion ecommerce business offers lessons on the future of retail.
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  • February 27, 2019

    The price is right for UK’s national newspapers

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    The average cover price of national newspapers has risen by 58% since 2010, more than twice the CPI increase of 22%. Are publishers “shooting themselves in the foot” at a time when buyers and advertisers are defecting to online?. To settle this, we analysed all the cover price events by national titles between 2010 and 2018, which reveals the relative success of The Times when it has raised its price. For mid-market and popular titles, cover price hikes have on balance reduced circulation revenues and, by lowering reach, drained advertising revenue: a lose-lose scenario.
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  • February 22, 2019

    BT Global Services: Playing a bad hand as well as it can

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    BTGS’s strategic plan seems like a sensible move in a very challenging market but it heralds its transition to a new operating model where its competitive advantage is largely eroded, its addressable market squeezed and it is arguably sub-scale. Although hybrid infrastructure and revenues from transition to cloud-based IT will provide something of a cushion, guidance and consensus forecasts are too optimistic in our view – cost-cutting plans are therefore likely deficient. Longer term, with IT services increasingly easy for corporates to manage themselves, diminished appetite for hybrid networks and global giants such as Amazon, Microsoft and Google squeezing out the middle-man, the space that BTGS occupies is likely to be considerably smaller.
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  • February 22, 2019

    Time to create an addressable UK TV market

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    Addressable linear TV advertising, where precision-targeted ads overlay default linear ads, could enhance the TV proposition for advertisers, agencies and viewers, benefiting all broadcasters. In the context of dwindling linear viewing and rocketing online video ad spends, the adoption of Sky AdSmart and similar services on YouView and Freeview could take addressable TV ads from a sideshow to a pillar of revenue. Addressable linear is a bigger and more strategic prize for broadcasters than BVOD ads. Sky holds the key to wider adoption of its AdSmart platform if it can find a way – or a price – to bring ITV Sales and/or 4 Sales on board.
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  • February 21, 2019

    BT Q3 2018/19 results: Openreach stronger than it looks, but Cons [...]

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    BT’s Q3 results were a little mixed, with mobile particularly weak, but the company remains on track to meet/exceed its (fairly conservative) guidance for the current year, and hit (modest) consensus expectations for 2019/20. Openreach was very weak at the headline level (-9%), but stripping out an accounting effect and internal revenue the division grew by 2% by our estimates despite significant price cuts, and full fibre roll-out is progressing well. While Openreach should accelerate this year, Consumer will be hit by a price rise holiday and slowing mobile, with investors likely having to wait for existing sports rights contracts to play out to see significant profitability improvement.
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  • February 15, 2019

    European pay-TV: Resilient in the face of SVOD’s growth

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    Across the EU4, pay-TV is proving resilient in the face of fast growing Netflix (with Amazon trailing), confirming the catalysts of cord-cutting in the US are not present on this side of the Atlantic. Domestic SVOD has little traction so far. France's pay-TV market seems likely to see consolidation. Meanwhile, Germany's OTT sector is ebullient, with incumbents bringing an array of new or enhanced offers to market. Italy has been left with a sole major pay-TV platform—Sky—following Mediaset's withdrawal, while Spain's providers, by and large, are enjoying continued growth in subscriptions driven by converged bundles and discounts.
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  • February 14, 2019

    UK Cairncross: platforms intervention to save news

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    The Cairncross Review has now reported on the tough question of “how to sustain production and distribution of high quality journalism in a rapidly changing technology environment”. New codes of conduct for the platforms and publishers are the Review’s key policy recommendation. In particular, the Review addresses the sustainability of public interest, including local, journalism. This news is important for democracy, but expensive to do well, not particularly popular and most sabotaged by an online ecosystem that rewards traffic over quality. This is a landmark public intervention, but implementation will be critical, even if there is no silver bullet – platforms, publishers and citizens need to rise to the challenge.
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  • February 12, 2019

    Wobbles ahead for TalkTalk’s fine balancing act

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    TalkTalk is delivering on its subscriber and revenue growth targets but is straining to get there. Price rises such as a £4 ‘TV access fee’ look increasingly risky. Whilst migrating to discounted high-speed helps to deliver top-line growth, margins are c. 40% lower; an unwelcome dent to already negative cashflow and stressed leverage. Both TalkTalk’s focus on revenue growth in a tight market and fibre rollout plans look increasingly unaffordable; a more modest ambition of stable revenues might allow a healthier business model to unfold.
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  • February 6, 2019

    UK Retail news update for January 2019

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    The volume of retail sales (excluding fuel) rose 2.6% for the year 2018, thanks to improved consumer sentiment on the back of the Royal Wedding, FIFA World Cup and warmer weather. With no special events in 2019, the environment for retailing will be bleaker, with or without no-deal Brexit. December retail sales volumes rose 1.7% year-on-year, less than half the pace of November, as consumers shifted spend to Black Friday/Cyber Monday. We predict the trend will amplify in 2019, as consumers increasingly target their spending on discounted products, with direct implications for the timing and nature of advertising. The value of retail sales (excluding fuel) was up 4% in 2018 as a whole, masking the tale of woe on the high street. Offline sales fell 1%, while online sales boomed, growing 14% in value, a structural trend for 2019.
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