2018 a crunch year for UK broadcasters

A comprehensive report from investment bank Exane/BNPP on the Future of UK TV presents a list of topics that make worrying reading for British commercial and pay-TV broadcasting.

The bank’s report finds that (especially among younger consumers):

  • TV continues to lose share of audience to online; and
  • OTT providers are set to maintain strong growth.

According to the bank, this brings elevated risk to the incumbent economics as a) OTT content quality and customer satisfaction continue to rise, bringing elevated risk of pay-TV ARPU / subscriber cannibalisation; and b) GAFA pressure TV ad market share.

The report suggests that the 21st Century Fox bid for Sky is expected to be approved, but the bank warns that a “no deal” position for Sky “looks painful”. The report says that the 21st Century Fox bid “is the key share price driver and we expect the deal to be approved in March 2018, especially given Ofcom’s supportive initial review. However, a Corbyn administration or a new Fox scandal are risks (albeit unlikely) and our scenario analysis implies a standalone price at 650-750p/share. Our survey data suggests Sky is performing well, with strong content quality and value for money perception; however, navigating OTT growth vs spin-down will be a challenge”.

Sky is always linked to premium sport, and the bank says that it expects a 30 per cent “bruising” price inflation for the English Premier League football rights, driven by continued strong demand from Sky and challenger BT Sport. “We think OTT players are unlikely to win a material share of the rights as i) too big a move too soon; ii) relatively expensive vs substitutes; and iii) too narrowly UK,” says Exane/BNPP.

ITV’s prospects also come under the microscope. “We continue to argue ITV Net Advertising Revenue (NAR) weakness reflects structural pressure from Google, Apple, Facebook and Amazon, rather than Brexit-related macro (as seen in much of EU FTA TV). We expect Q3 NAR could surprise on the upside but are cautious on Q4 exit momentum. We remain sceptical on material retransmission fees post channel checks. With new CEO Carolyn McCall starting in early 2018, we see reinvestment risks in programming costs, ITV’s Online presence and potential Studios restructuring as she looks to reaccelerate anaemic growth.”

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