Filter by

Filter by

Filter by

  • Placeholder
    December 10, 2002

    TF1 – The Future of TPS

    This note looks at the position of TPS, the satellite pay-TV venture largely owned by TF1 in France. We particularly focus on the issue of payments for football rights because sports rights have become the crucial ingredient in pay-TV success, in France and elsewhere.

    Sector .
  • Placeholder
    December 5, 2002

    Universal Music – Valuation

    Universal Music is an important component of Vivendi's business. As M. Fourtou shuffles his cards, the disposal or flotation of Universal becomes more likely by the day and this report values this market-leading record company.

  • November 29, 2002

    C4 and E4

    One response to the growth of the satellite and cable households has been for terrestrial broadcasters to launch their own digital channels. These channels are beginning to absorb significant fractions of the total programming budget and in this report we look at the implications for the parent broadcasters. We examine E4, Channel 4's main satellite entertainment channel, showing that it is likely to remain a drain on the parent for many years to come. Rather than ‘strengthening the brand' of terrestrial broadcasters, which is the reason normally given for diversification into satellite channels, our research shows that E4 and other services do nothing for the parent company and divert programming expenditure that would otherwise be usefully spent on the terrestrial service.

    Sector .
  • November 27, 2002

    Mobile and Internet Substitution

    Weak revenue growth has been a feature of both European and US fixed line incumbent operators over the last six months, with the root of the problem lying in poor growth, or even decline, in the volume of voice calls. This report looks at the reasons.

  • November 26, 2002

    Canal+ The Showdown

    Based on the recent announcement by the French Professional Football League, we now expect Canal+ to be awarded the exclusive rights to broadcast Premier League events for the three seasons starting in 2004, for which it offered €480 million. (Rival TPS is challenging the League's approach to the Competition Commission, so the story may yet have an unexpected ending.) These payments will add to an already hefty calendar of payments for Canal+ under the 1999 contract, as a result of which Canal+ is likely to report no or low profits in FY 2002. This note details the aggressive cost cutting and revenue-raising measures that will be needed to achieve a modest level of profitability going forward. By FY 2005, when Canal+ becomes the sole purveyor of Premier League events and payments rise by 60%, the subscriber base will have to be 180,000 higher just to maintain profits at 2004 levels. This seems a challenging target given that Canal+ lost 70,000 subscribers this year. In short, we think that Canal+ may have won the battle for Premier League rights at the price of its profitability in the medium-term.

    Sector .
  • November 15, 2002

    The Song Remains the Same

    In spite of the widely publicised decline in sales of recorded music, the 'music publishing' business grew at an average annual rate of over 4% between 1995 and 2000. This report assesses the prospects for this important segment of the music industry.

  • November 8, 2002

    Canal+ and Cegetel

    The November 12th bids for football rights are a nightmare for Canal+. Its operating margins and cash flow are under pressure, but failure to outbid TPS would mean a probable loss of perhaps 25% of its subscribers. This makes it likely, we think, that TPS will end up buying Canal+ from Vivendi, whoever wins the football rights, at a much lower price than the valuation of €3.5bn suggested recently by Morgan Stanley. Similarly, Vivendi may realise that it will be forced to sell the studio and the record business to Bronfman/Diller for less than current valuations. This potential devastating scenario perhaps explains why M. Fourtou is so keen to buy the rest of Cegetel, rather than selling out to Vodafone. Otherwise he would have little else left to manage. Or perhaps he is simply playing poker with Chris Gent, but running the risk that he ends up over paying. Vodafone cannot lose. It will either buy Cegetel now, or wait for it to fall into its hands when the bankers withdraw support for Vivendi.

    Sector .
  • November 6, 2002

    UK Digital TV Forecasts

    This note provides our forecast for the number of UK households able to receive extra television through satellite, cable and terrestrial multi-channel platforms. Though Sky's performance has been strong this year, subscriber growth has been largely at the expense of cable and digital terrestrial. We expect this pattern – Sky outperformance within a slowly growing multi-channel universe – to continue. We are pessimistic about the prospects for Freeview, the BBC's new digital terrestrial platform. The programme offering is weak and too directed towards the under 35s, who now largely already have digital television. The technical problems of obtaining better coverage for the service remain severe.

    Sector , .
  • November 4, 2002

    BT Broadband

    In this report, we show that price competition between ISPs is helping to push broadband penetration to higher levels than we expected. BT is likely to achieve at least some of its targets for broadband connections. However, this is at the expense of profitability. We suggest that BT Retail is unlikely to make money on broadband connections, particularly in view of the high acquisition costs and the potential for subscriber churn. We also note that the BT strategy in broadband is crippling other ISPs.

  • The Internet of All Things - Towards the Hyper-connected World
    The Internet of All Things - Towards the Hyper-connected World
    November 4, 2002

    UK Internet Trends Q3 2002

    This note shows the mixed evidence on household penetration. Most surveys report a distinct plateau in subscribing household numbers in the UK, particularly compared to France and Germany, where numbers are still growing. Other surveys show a continuing rise in individual users. On balance, we think the data does point to a clear deceleration in the growth in subscribing households. Current penetration is just over 10m homes, or 40% of the UK total.

  • November 1, 2002

    Mobile Device Update

    In this short note we look at three data product offerings recently launched by the operators: Vodafone Live!, the Orange SPV and Vodafone Mobile Office laptop card service. Vodafone Live! follows a sensible strategy of having the operator define the user interface to help drive revenues, and is launched with two new light and compact handset models. However, the service has many glitches, with only the camera function working as well as it should, and very few of its target market will be likely to be able to afford the handsets. The SPV and laptop cards, being aimed at business users, stand a much better chance of being affordable to their target market, but we wait to see if those products are marketed and executed well.

  • Placeholder
    October 28, 2002

    UK Consumer Magazines

    The UK consumer magazines business has shown steady growth and stable profitability, though some individual participants have suffered from failed attempts at international expansion. The industry has overcome the advertising recession very successfully so far. This is partly because only 30% of revenue is derived from advertising, but also because page rates have continued to be firm. Though profit margins are currently lower than regional newspapers, the sector shows considerable scope for improved returns. Several factors lie behind this assessment. The first is that growth of Internet households will slow, possibly to 10%, although expansion will be faster than in the UK or Germany. The second is that Wanadoo, as the ISP arm of France Télécom, continues to benefit in our view from advantages that other ISPs cannot match, significantly reducing customer acquisition and retention costs, whether on narrowband or on broadband. Actions taken by the regulator have largely been too little, too late.

    Sector .
  • October 28, 2002

    Vodafone Live

    Vodafone Live represents an attempt to claw back some of the initiative from handset manufacturers, and to offer product and services that add to revenue. We look at the early evidence from the UK about the design of this package, its consumer appeal and the likely impact on ARPU. Vodafone is launching this new campaign with a Java-enabled camera phone from Sharp. It is putting tens of millions of pounds behind Live, apparently targeting the product at young urban males, a demographic group that has become very loyal to Nokia. The first phone is attractive and well featured, but we question whether it is of sufficiently general appeal significantly to influence overall ARPU in European markets, particularly in light of the low levels of interest we are finding in our consumer research on camera phones. Our most recent survey of handset purchase intentions shows a dramatic increase in interest in buying a new phone among UK adults. 39% of handset owners claim an intention to purchase in the next year, compared to about 30% in the last three bi-monthly surveys.

  • October 14, 2002

    UK TV Viewing Trends – Issue 3

    This is the third of our regular reports on UK TV viewing. The report contains details to support the following assertions. The operators were hoping that the CC would soften Oftel's seemingly tough proposals (RPI-12% price cap); it seems most likely now that they will actually toughen them, incorporating a one-off cut in the new regime, which we estimate would negatively impact industry EBITDA by just over 10%. The process will, however, be far from over: we predict at least one legal challenge ahead, possibly several, delaying the implementation for many months into next year (EC legislation comes into force on the 24th July 2003 which may delay matters even further).

    Sector , .
  • EMI
    October 6, 2002

    Robbie Williams

    What prompted EMI to spend about £60 million to acquire Robbie's next two records and to buy options on the next four? Even for an artist as successful as Robbie Williams, the numbers do not add up. Having sold less than 6 million units of his last album, EMI appears to be gambling that his next two records will sell more than 8 million units each, of which 2 million need to be in the US.

  • October 1, 2002

    Nokia 3G Handset Launch

    Last week Nokia launched its first 3G handset, the 6650. Or did it? Although the size, weight and price initially looked impressive, the handset has not really been launched (not until H1 2003), and technically it is not really 3G (the data rates are too slow). By the time the handset is actually widely available to consumers, GSM-only handsets will have a much better feature/price combination, with a 3G handset only appealing to laptop users who would probably prefer a data card anyway. This is good news for the operators - they can comfortably delay potentially expensive 3G roll-outs safe in the knowledge that competitors will not gain any advantage by being first to market with the current generation of handsets. This note looks at what has happened to NTL in the past year, and the prospects for 2003-2004. It emerges from a period of introspection to face stronger competition than ever. Sky has won the battle for digital TV. Although NTL has been successful in broadband this year, BT has serious plans for this market.

  • September 29, 2002

    Wanadoo H1 2002 Results

    Wanadoo's results for the first half of 2002, detailed in the attached note, show that the company is well on track to make its target of positive EBITDA as the loss margin has been cut by half on the Internet side of the business. The targeted revenue increase of 30% also looks plausible as Internet access revenues have done well in France due to migration of the subscriber base to higher priced broadband packages. Wanadoo hopes to have 1 million broadband subscribers by the end of the year, and is counting on the rollout of a new lower speed (128k) and lower-priced broadband package in mid-October. The French Competition Commission has also permitted the company to again market its broadband packs in FT's network of shops, cutting customer acquisition costs. Margins will improve in mid-October due to wholesale broadband price declines mandated by the regulator ART. We think that the business is worth about €6bn, rather less than the €7-9bn that the investment banks are projecting. The difference arises because we think that they over-estimate the value of Universal's music publishing business and expect a faster upturn in recorded music sales. But Universal is clearly strongest of the major music companies and we do expect the company's margins to recover from the low levels seen this year.

  • September 29, 2002

    Mobile Handset Replacement

    This note reports on our third bi-monthly survey of handset replacement intentions in the UK. Purchase intentions have weakened slightly in the last four months, suggesting a further lengthening in the average replacement cycle. Interest in replacing phones to acquire new handset features remains low. Awareness of camera phones is extremely high, but the most recent survey shows a decline in the level of interest in purchasing, probably as the prices of these devices has become more widely known. Nokia remains the overwhelmingly dominant choice for consumers' next brand of phone. No other manufacturer has more than a tiny prospective share. We think that TPS can probably just survive the prospective loss of football to Canal Satellite. Paradoxically, this may not be an ideal result for TF1, because it will not be able to argue that a merger of the two satellite platforms is justified on 'failing firm' grounds. Competition regulators will sometimes allow a merger on the grounds that the weaker company is bound to fail. This does not seem to be likely to be the case in French pay-TV, though TPS's subscriber numbers will be dented by the loss of the best football.

  • September 22, 2002

    UK Broadband Market

    This note provides an update on the state of the UK broadband market at the end of the summer. The number of broadband users in the UK is rising fast, but much of this growth has arisen from the introduction of NTL's 128k product. 128k is not usually considered a data speed consistent with the term 'broadband'. However, ISPs should note the level of interest in this product and its highly competitive price point (£14.99). We continue to say that to be a product of appeal to the majority of Internet users, broadband has to be priced at no more than £20 per month. We also look briefly at options facing non-BT ISPs and suggest that the best strategy may be to launch a broadband product but only make it available to those that ask for it, rather than actively promoting it. Those that defend E4 and ventures like it point to the importance of programmes like Big Brother, which was hugely successful on the satellite service. We try to demonstrate that even this undoubted success brought little financial benefit to E4. Big Brother, broadcast day and night on E4 over the summer, generated about half of E4's total viewing for 2002. Nevertheless, it probably brought in no more than £8m advertising revenue, not enough to cover two months costs of running E4. The competition for the 18-34 audience on satellite is beginning to become acute. The best thing for Channel 4 to do would be to close E4, blaming government for allowing the BBC to sink £100m a year into programming a similar, but publicly funded service.

  • Orange
    September 15, 2002

    Orange UK’s New Tariff

    On Wednesday Orange announced a simple new single tariff range for all its new contract users. Although there are some benefits to both consumers and Orange of tariff simplification, the main impact appears to be to increase the price of calls for off-peak users, which is a sensible strategy for Orange and consistent with other tariff increases we have seen recently. Orange may lose customers because of this, but it has helpfully given four weeks warning of the change to the other operators, who may react with changes of their own. Weak economic growth is usually blamed, but we believe that other forms of communication are substituting for fixed voice calls. Substitution of fixed line calls by calls from mobile phones is increasingly less important. By contrast, our conclusion is that Internet-based communication (email and instant messaging) has recently become a far more important source of competition to fixed line voice calls.

  • Placeholder
    September 14, 2002

    Korean Broadband, Wireless and TV

    This report looks at whether the extraordinary investment in Korean digital infrastructure has changed consumer behaviour. A combination of the Korean government and the large conglomerates have provided almost universal broadband access, the world's most advanced 2.5G networks and are just beginning the process of providing ubiquitous digital TV. Alongside the growth in infrastructure, a small number of businesses have begun to develop substantial revenue streams from content. Of particular interest is the growth of multiplayer online games, in which Korea has a world lead. Music publishing revenues are composed of multiple streams arising from almost all uses of music – radio, TV, live performance, sale of physical formats, use in film/TV soundtracks, sale of printed music etc. Of these, only the publishing revenues derived from the sale of physical formats are in decline. Otherwise, the industry is buoyant as music becomes yet more ubiquitous in everyday life. The latest version of Grand Auto Theft has 80 music tracks on it from major stars, an example of the spread of music into every corner of life.

  • September 13, 2002

    European Mobile Operators – Mobile Valuation

    In this report, we look at the components of a theoretical DCF valuation of European mobile operators, focusing on Vodafone as the most salient example, and compare our views with those of the ‘analyst consensus'. Perhaps unsurprisingly, we are more conservative on revenue and margin forecasts than most forecasters, but an area in which we are uncharacteristically optimistic is cost of capital; the one benefit of the mobile industry's transformation to low but stable growth is that WACCs should fall through both reduced betas and the ability to take on more debt. Our resulting value per share for Vodafone is lower than the analyst consensus forecasts would give, but is still a healthy 115p. We should stress that this is not a price target or a recommendation, as many other factors affect stock prices apart from theoretical projections. The Vodafone share price is currently trading below the valuation implicit in our low growth assumptions, perhaps because of cynicism about the company's excessive past promises, the possibility of further expensive acquisitions or many other potential concerns.

  • Placeholder
    September 9, 2002

    Consolidation in Media Buying

    The last three years have seen huge concentration in the marketing services industry. One source suggests that 56% of the world's advertising billings now pass through just seven buying groups, up from 32% in 1999. Though the advertising recession in major economies shows little sign of abating, the major groups continue to grow by acquisition, often financed by debt. At the same time, media planning and media buying have moved to the centre of these groups after a century of being little more than a clerical activity at the periphery of their business.

  • August 29, 2002

    Wi-Fi: Wireless Data in Public ‘Hotspots’

    The last few weeks have seen several enthusiastic announcements from telecom operators eager to start public Wi-Fi services. In this note we look at the prospects for public Wi-Fi. Our analysis suggests that Wi-Fi is likely to suffer from three major problems. Our central projection – that about 50% of households will have access to multi-channel TV in 2006 – is far lower than other forecasters. Indeed, if we are wrong, it will probably be because we are too pessimistic. However, more sanguine observers should note that Zenith, probably the most quoted industry analyst, has quietly reduced its digital TV penetration forecasts by 5 million homes (over 20% of UK households) in the past year.