Enders Analysis

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  • New
    August 19, 2019

    Virgin Media UK: subscribers fall but ARPU grows

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    Virgin Media’s results were quite mixed, with the subscriber base shrinking in a very slow market, but ARPU and revenue returning to growth despite pricing pressure and regulatory drags. The outlook remains challenging, but market pricing does seem to be easing with no repeat of the damaging Openreach price cuts on the horizon. ‘Full fibre’ roll-outs will bring further challenges, but opportunities as well, with the accompanying focus on higher speeds likely to be a significant operational upside in the short to medium term.
  • New
    August 16, 2019

    Sky UK Q2 2019 results: strong subscriber growth and long-term in [...]

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    Sky’s Q2 results were encouraging overall, with significant subscriber growth swinging direct-to-consumer revenue growth back to positive. ARPU declined once more, since new streaming customers are taking lower-priced products, but total revenue growth accelerated to 2.4%. EBITDA rose 20%, primarily due to the dropping out of some large one-off costs. Next quarter, Sky will begin making savings on the new Premier League rights contract, and increased football rights costs in Italy and Germany will have annualised out. Having launched Sky Studios in June, Sky is focused on producing original European content, with ambitions to double spend over the next five years, in a calibrated response to the Netflix-led race for content.
  • New
    August 14, 2019

    BT: Temporary problems, long-term promise

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    BT’s divisions had contrasting fortunes in Q1 2019/20, with Consumer revenue growth sharply turning negative but Openreach external revenue growth accelerating to 10%, leaving the Group level unchanged at -1% and EBITDA on course to meet guidance. Consumer was hit by several regulatory and pricing factors mainly affecting mobile, and the short-term outlook remains tough, with a number of legacy pricing issues across fixed and mobile still to be resolved. Openreach is reaping the benefit of previous price declines annualizing out, allowing it to take full advantage of higher speed demand, and due to its full fibre roll-out this dynamic could persevere for years.
  • August 12, 2019

    Netflix’s US subscriber loss

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    Netflix lost 126,000 US subscribers (net) in Q2, the first time this has happened since 2011 when there was a price rise and the Qwikster debacle. This time a price rise—of one or two dollars, depending on tier—was one culprit, but the soft release schedule of big, returning original series, which usually give a bump to subscriber additions, played a part. Q3 has those series returns in spades, with Stranger Things, Orange is the New Black, Money Heist and Mindhunter likely driving subscriber numbers back up, but the suggestion that there is less flexibility to raise prices than previously assumed is a worry for Netflix and incoming competitors.
  • August 5, 2019

    Vodafone UK: some signs of life but an uncertain road to recovery

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    Vodafone’s newfound focus on performance improvement is showing signs of delivering – more on the cost than revenue side. Tower sharing has the potential to ultimately enhance European cashflow by 10%. The revenue picture is more mixed with churn improving but a very varied operational picture across its major European markets. Although Vodafone highlights the potential for German cable to drive growth post Liberty Global deal completion, their current 0.4% growth in Germany does not give cause for optimism
  • August 2, 2019

    O2 UK: Lower costs mitigate the challenging environment

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    O2’s service revenue growth slipped decisively into negative territory at -1.8% this quarter as the punishing regulatory regime took its toll. Underlying EBITDA growth of 4% was particularly impressive in the circumstances; likely aided by more direct distribution as well as tight cost control. The coming week will unveil how this compares to peers; we anticipate results which reflect a tough environment with little let-up on the horizon
  • July 24, 2019

    TalkTalk UK Q1 2019/20 results: Slower but steadier

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    TalkTalk suffered subscriber losses and falling consumer revenue growth in Q1, with churn still high despite the high speed base growing, countered by ARPU growing for the first time since 2017. The subscriber drop was, however, modest and looks quite deliberate, with there being evidence of price firming in both direct and indirect channels supporting both ARPU and margin. This more cautious approach, if it can be sustained, puts the company on a much more healthy footing in our view, allowing it to achieve its financial targets without increasingly unsustainable existing customer price rises
  • July 23, 2019

    How could the BBC ever fund the over-75s?

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    In the BBC’s 2015 funding settlement commencing 2017, the Government assumed the BBC would fully fund the subsidy for over-75s to the tune of £750 million from 2020/21. Although the BBC’s settlement contained measures of “mitigation” worth c.£290 million, the BBC would still have faced a gap of c.£460 million to be funded by programme cuts and efficiencies (the BBC has pledged £250 million). Including c.£300 million from the annual adjustment of the licence fee for inflation from 2017 would help. However, this was always required to offset normal salary and cost increases to prevent a real decline in the BBC’s resources.
  • July 16, 2019

    Future of UK Public Service Media: EPG prominence to the fore

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    Ofcom’s recommendations to Government suggest updating EPG prominence legislation to cover connected TVs, and were warmly welcomed by the PSBs. Balancing various commercial, PSB and consumer interests will be key; determining what content qualifies for prominence will be a particularly thorny issue to resolve. Extending prominence to smart TVs and streaming sticks is critical, but implementation will be challenging
  • July 10, 2019

    Google’s Icarus moment

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    ­­­­Google’s advertising business has begun losing market share in the US, with competition from Amazon, Facebook and Microsoft intensifying in search and display. In response, the company is redoubling efforts to reshape its apps, services, and the entire web for more efficient monetisation, spelling uncertainty for partners and users. The adaptability and complexity of Google’s services reduce business risk from targeted regulatory measures, but increase the pressure for a radical intervention
  • July 8, 2019

    Roku: OTT pioneer under threat

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    With c.22m accounts across 44m devices, Roku has a US footprint that exceeds the largest pay-TV platforms. Limited competitive advantages highlights the scale of this achievement, but also leave the pioneering firm vulnerable to activities from bigger, wealthier rivals Apple, Amazon, and Google as well as pay-TV providers. The odds are stacked against Roku, but continuing the innovation in production and product that built its lead may secure future success
  • July 2, 2019

    A strict early privacy verdict for UK online advertising

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    The Information Commissioner’s Office reported on the UK online advertising sector, finding common industry practices unlawful under a strict interpretation of the GDPR and UK privacy law. The ICO focused on problems around transparency, consent and data sharing in the Real-Time-Bidding ecosystem, which comprises 16% of UK online ad spend, but most of publisher online ad revenue. The ICO is giving the industry six months to shape up, with the next steps still unclear. The Competition and Markets Authority has had under consideration an investigation into the entire online advertising sector, but is hampered by Brexit-related considerations.
  • July 1, 2019

    Reader-first news media: From transition to transformation

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    The number of people willing to pay for online news now roughly matches print paid circulation, and will soon be substantially greater, with publishers increasingly demonstrating that their strategies are influencing industry outcomes. Our thesis is that subscriptions work in some cases, but that a more systematic reader-first approach benefits all cases, recalibrating management focus to media’s core purpose. Effectively implementing such an approach is a more radical, transformative development than is sometimes assumed. The winners will deploy sophisticated, bespoke audience acquisition and retention funnels and undergo detailed appraisals of the trade-offs necessary for optimal user experiences.
  • June 27, 2019

    2019 UK TV advertising backstopped by Brexit

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    We expect total TV ad revenues to decline 3.3% in H1 2019, partly due to a return to Earth following the idyllic conditions of the World Cup in June 2018. Bad omens for advertising for H2 include the sagging economy since April and the Government’s impetus to achieve Brexit on 31 October, with or without a deal. Our forecast remains a 3% decline for total TV ad revenues for 2019 as a whole, with the risk of a more serious downturn in 2020 in the wake of Brexit.
  • June 25, 2019

    European mobile in Q1 2019: Toughest conditions in four years

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    European mobile service revenue growth slipped again to -2.0%; its worst performance in four years.Regulation limiting intra-EU call prices could hit hard next quarter – with the UK likely to be hardest hit by up to 6% of revenues and 20% of EBITDA. Excluding the EU-call impact, we see greatest scope for improving trends in Italy and France thanks to easier comps and diminishing competitive intensity.

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  • June 24, 2019

    Advertising Pays 7: UK Advertising’s Digital Revolution

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    Online advertising plays a larger role in the UK economy than anywhere else in the world, having grown hand-in-hand with the highest ecommerce spend per capita and a business creation boom. There are many factors behind this success, access to investment and top talent (both technical and creative) structural characteristics in the economy and society—not least a culture of experimentation and entrepreneurship. As with all maturing industries, sustaining future growth will bring new challenges: along with economic headwinds, UK online advertising now faces an urgent need to restore public trust, with a combination of statute and self-regulation.
  • June 18, 2019

    UK broadband, telephony and pay TV trends Q1 2019: Price wars dom [...]

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    Market revenue growth dipped to around zero in Q1, with fierce competition on new customer pricing the major factor. All four of the big operators now suffer from declining ARPU, with existing customer price rises increasingly hard to land given falling prices for new customers. The rapid move to superfast is not helping as much as it should; the operators will hope that they fare better with the move to ultrafast.
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  • June 17, 2019

    UK mobile market Q1 2019 – Pressure to mount after mixed bag in [...]

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    The UK mobile market posted its slowest growth in more than two years this quarter; just 0.5% service revenue growth although net adds were strong and churn was down. ARPU is under considerable pressure thanks to regulation limiting out-of-bundle spend which will exacerbate as the year progresses. Several other negative developments look set to be layered on the pressures this quarter, including a step-up in competitive intensity as 5G launches –  with H3G’s pricing of unlimited data a sign of a resurgence in its aggression
  • June 14, 2019

    UK Channel 4’s balancing act: 2018 annual report

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    Mindful of the uncertain future effects of ongoing events, most notably the stagnating TV ad market and the costs of establishing an HQ in Leeds, Channel 4 returned a £5 million pre-tax surplus in 2018, which after investment in Box left its cash reserves at £180 million. Increased digital revenue more than made up for the anticipated drop in spot advertising and sponsorship (with group viewing share and SOCI down) while cautiousness necessitated lower content spend (down 5% from the peak in 2016); a concern given rising content costs. Nevertheless, Channel 4 is doing a good job delivering its remit in a tough environment, continuing to broadcast programming no-one else would and leveraging long-standing relationships to nurture television and film of a quality and ingenuity that belies the modest size of the organisation
  • June 13, 2019

    O2 UK: holding its own in toughening conditions

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    After a period of significant outperformance, O2’s Q1 results reverted to sector average revenue growth with ARPU down by 3% and all of the growth coming from ‘other’ revenues. Regulation limiting out-of-bundle spending has been a significant drag which will continue to worsen. A more competitive market and a punishing regulatory outlook will make it very challenging to sustain 2018 growth trends as this year progresses
  • June 12, 2019

    Monetising user-generated video

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    ­­­­Video sharing platforms, like YouTube, Facebook Watch and Twitch, are vying to attract creators with monetisation options such as branded content and user payments. Advertising income, already limited for many small and medium-sized creators, has been undermined by YouTube’s response to brand safety concerns. The new tools come with their own obstacles, but are necessary to keep platforms attractive to video creators.
  • June 5, 2019

    UK HFSS advertising ban consultation

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    The UK government is now consulting on a wider TV advertising ban until 9pm for food and drink high in fat, salt and sugar (HFSS), to combat childhood obesity. TV and TV advertising are not the cause of children being overweight or obese (O+O). Policy change in this area should inform and educate parents and young children, as they have in Leeds and Amsterdam. With 64% of the UK population being O+O, obesity is a complex societal issue requiring a multifaceted approach. The evidence from existing rules, and plummeting TV viewing amongst children, says that further restrictions on TV advertising will be ineffective in curbing the rise of obesity in the UK.
  • June 3, 2019

    TalkTalk UK: a welcome slowdown?

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    TalkTalk hit the bottom end of its (revised) 2018/19 EBITDA guidance, an achievement given fierce price competition and the margin-dilutive effect of high speed upgrades. This is however helped by one-off Openreach price cuts, and price rises for ancillary products (voice calls and pay-TV) and out-of-contract customers that look hard to sustain. Subscriber growth slowed dramatically in Q4, and continuing this more measured approach could help the company counter multiple market pressures, and perhaps even lead to a détente in the current price wars
  • May 29, 2019

    Vodafone – pressure is still on

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    Vodafone’s operating performance worsened again this quarter with revenues down 3.3% and an extension of its underperformance relative to peers. Vodafone was right to cut its dividend given the extremity of the cash constraint. With financials in Euro terms in negative territory and worsening, an elevated and progressive dividend was not sustainable. In spite of difficult market conditions, the lower end of guidance looks achievable as comparables will become easier and football rights costs decline. The transformation programme will need to pay off fast to deliver any meaningful growth