Advanced Television

UK ad expenditure to keep growing

March 2, 2016

UK advertising is in rude health, with a strong 2015 followed by what Enders Analysis projects will be strong growth through 2018. This growth is despite some uncertainty as to the TV viewership among the younger age-group, an issue that Enders Analysis interrogated in two separate notes concerning “millennials”; and the continuing decline of spend with print.

Enders research highlighted the continuing importance of Channel 4 – its remit for diversity and experimentation and its impact upon the independent production sector. In 2014 alone they worked with 338 different creative partners, many of which place their future in the hands of the pure PSBs; Channel 4 and the BBC.

Sky delivered another strong quarter, while information from Google’s court case with Oracle revealed to some a vulnerability on mobile – Enders outlined why such beliefs are misguided. Enders considered the Chinese OTT and SVoD market, highlighting its appeal but also tempering any enthusiasm with a presentation of the perhaps insurmountable hurdles that must be cleared before launch by a foreign service.

In telecoms, Enders published results notes on BT, Virgin Media, TalkTalk, EE and Vodafone, detailing the performances of each operator. This will be the last time that BT and EE report separate results, following the completion of their merger on January 29th. In this last EE results report, Enders note that in acquiring EE, BT has taken ownership of an increasingly profitable company, but also one currently suffering revenue declines. In the fixed line market, BT obtained the strongest revenue growth among its peers, gaining while TalkTalk suffered from a cyber-attack.


UK advertising expenditure forecast 2016-2018  

2014 and 2015 have been outstanding years for the advertising market, seeing growth of 5.7 per cent and 7 per cent respectively. With no clear warning signs at present Enders projects continued strong year-on-year growth. The balance of the market, however, is dramatically shifting, with press suffering loss of share to the benefit of the Internet. By contrast, television has much less to worry about. Even allowing for the growth of digital video and further decline in viewing among younger age-groups Enders expects TV display advertising spend to increase during 2016-2018 by 12 per cent in real terms, close to market average.

Channel 4 market impact 

A product of the creative tensions and competition for budget from in-house studios and independent production companies, the innovation and ingenuity of the UK’s television production sector is the envy of most nations. As Channel 4’s licence does not permit it to produce any programming in-house, coupled with its remit for diversity and experimentation, it has emerged as a lynchpin of the independent production sector, including suppliers outside the M25. Indeed in 2014 the company worked with 338 different creative partners to produce content for Channel 4. As we cannot expect ITV or Channel 5 to commission from the smaller indies, film companies or digital production houses, the impact that the channel has upon the independent sector should not be understated.

Will the young of today ever turn to trad TV

The steep decline in TV viewing among younger age-groups has continued in 2015. However, BARB data from the second half of the year showed a significant ease in this trend, suggesting that the explosive impact of smartphones, tablets and social networks has almost reached its limits. At the same time, the millennials are still watching substantial volumes of long-form TV content and Enders believes they will revert to something closer to current levels among older age-groups as they move up the lifestage ladder.

Millennials, mobile and traditional media

It is the millennials’ obsessive adoption and use of smartphones that differentiates them from older generations. They are not avoiding traditional media, rather they are embracing the control that these devices give them over content such as video, news and music. As such, while their preoccupation with mobile erodes time spent with other media it also creates new opportunities for traditional media brands that can be flexible enough to keep pace with their frenetic platform-switching habits.

Sky Q2 2016 results – Innovation, service and bonding  

Sky has delivered another strong quarter with the H1 adjusted operating profits across the group rising by 12 per cent year-on-year on a like-for-like basis; an upward trend that clearly has a lot of mileage left in it. There were also promising performances by Sky Germany & Austria and Sky Italy, which, although small compared with the UK & Ireland operations, are a testament to the group-wide commitment to content, innovation and service. The announcement that Sky Atlantic had finalised an exclusive licensing agreement with Showtime akin to what they already have with HBO further bolsters the appeal of a channel that is already the second most common reason for choosing Sky.

China OTT and SVoD 

With an audience of 460 million online video users as of mid-2015, China continues to hold a tremendous appeal to studios and OTT video services. Attracted by content considered more desirable than the heavily regulated programming on state-owned TV, in an environment where few homes possess interactive services, users could exceed 900 million by 2020. But Enders foresees foreign providers such as Netflix facing considerable, perhaps insurmountable, hurdles before entering the market. Strict content guidelines, as well as foreign ownership restrictions mean that a Chinese launch could not be undertaken without major structural changes.

Google’s exaggerated mobile trouble 

Reported statements from recent court proceedings in the case between Google and Oracle regarding a search deal with Apple and Android revenue have been interpreted by some commentators as accentuating Google’s vulnerability on mobile. However, Enders believes that the reported figures surrounding their traffic acquisition deal with Apple are positive when compared to previous analyst estimates. In the case of Android, the tendency to evaluate success strictly in revenue terms is misguided, ignoring the OS’ place within Google’s broader strategic goals and its future earning potential.

A future for tablet publishing? La Presse case study  

Pertinent to the Independent’s predicament Enders examined the successful online offerings of Montreal’s La Presse and the Toronto Star. La Presse+, a market-leading, free access, tablet-optimised app has demonstrated that despite their much smaller audiences when compared to smartphones and PCs, tablets can deliver superior engagement by an order of magnitude. Readers have been attracted by the app’s ability to bring key print features to the tablet version such as an immersive, easy to navigate and carefully curated template that distinguishes itself from the pre-set breaking news formats elsewhere on the web. Early returns for the Toronto Star’s product, Star Touch, also look positive.


BT Q3 2015/16 results: Fibre-driven accelerating revenue

BT Group’s revenue growth accelerated to 4.7 per cent in Q3. Although this was helped by some beneficial one-offs, including the TalkTalk cyber-attack, the underlying trends also looked strong across all divisions. These were partly driven by fibre adoption, which had a record quarter, with growth particularly apparent at BT’s DSL competitors, helping to drive Openreach’s external revenue growth to 7 per cent. At the end of January, BT completed the purchase of EE, and BT will keep EE’s consumer side separate but fully integrate its business side. Enders are sceptical of consumer revenue synergies, but the business side and cost synergies will significantly benefit going forward.

Cyber blues: TalkTalk Group Q3 2015/16 results 

Damage from TalkTalk’s cyber-attack was revealed to be a 2 per cent impact to the on-net subscriber growth, a 3 per cent impact to Group revenue growth and a combined EBITDA and exceptionals cost impact of £75-80 million, roughly double the previous guidance. An updated FY17 trading strategy now promises “more conservative” price increases and a greater focus on upselling mobile/fibre/TV to existing customers, while maintaining rather than growing the consumer base.

Vodafone Q3 2015/16 results: Almost stable

Vodafone Europe’s service revenue growth continued its trend of gradual improvement, helped by solid contract net adds and sustained high data traffic growth, and is now almost stable. Project Spring network metrics performed strongly in the quarter, and there is some evidence of this translating into better operating performance in Italy, which enjoyed positive mobile service revenue growth for the first time since 2010. However, problems remain for the company in its other key mobile markets, all of which remain in decline.

EE Q4 2015 results: Slowing revenue, accelerating profits 

EE reported solid contract net adds, but weakening contract ARPU, which drove mobile service revenue growth down to -2.5 per cent. However, EBITDA growth was spectacular at 15 per cent in H2, suggesting that much of the subscriber growth is in low revenue high margin segments such as SIM-only and B2B, as well as cost control being strong. EE’s new parent BT is likely to be able to drive further progress in these areas, and EE’s outlook is robust even if quad play demand remains low in the consumer market.

Lightning strikes: Virgin Media Q4 2015 results 

Project Lightning is showing clear signs of success, running ahead of new premises targets, which helped deliver the strongest organic RGU performance in over seven years, and could add c1 per cent to revenue growth in 2016. On the other hand, recent performance, though still strong, was not immune to the rivalry of Sky and BT, with efforts to manage profitability in the face of inflated sports content rights costs in turn yielding tension at the subscriber level. Mobile revenue growth was relatively weak and quad play penetration fell, but the H3G/O2 merger in the UK may provide an option to improve its mobile wholesale deal, and the cable/mobile JV in the Netherlands with Vodafone points to a possible similar deal in the UK in the longer term.

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