Investors pressuring AT&T to divest TV assets – report

Reports are circulating the telecoms press pages suggesting AT&T investors are pressuring new CEO John Stankey to sell assets in DirecTV.

According to Fox Business News, ‘bankers’ are pushing for divestment in DirecTV to reduce the heavy debt which are weighing down financial spreadsheets. This is not the first time there have been calls to sell interests in the content units, but the telco has resisted so far, emphasising the importance of streaming and entertainment in the convergence mix.

While debt is something which will always exist in the corporate world (some see the accumulation of debt as a measure of corporate ambition and market confidence), AT&T seems to be in a position which is making investors uncomfortable.

As it stands, AT&T currently has $164.3 billion in debt, $147.2 of which is deemed long-term. Considering how cash-absorbent the telecoms industry is, there will always be debts on the books at AT&T, but this is a company which has made very large bets on the content world, the success of which is very debatable.

During July 2015, AT&T purchased DirecTV for $67.1 billion including assumed debt, and a year later it announced it was acquiring Time Warner for an eye-watering $108.7 billion. The business also has a 2% stake in Canadian entertainment company Lionsgate, as well as several smaller bets. The aims are to add additional revenue streams to the AT&T business, attempt to sell convergence packages and add greater resilience against macroeconomic trends and the commoditisation path the telco industry is treading.

It is of course a valiant quest from the executive team, dipping fingers into additional pies to create a more diversified business, but it is questionable as to how successful the team has actually been.

These are very big gambles to make, working against general consensus in the industry with many rivals choosing to take a content aggregator position, a safer albeit less profitable bet on the platform economy. Of course, doing something different to the status quo is not necessarily a bad thing, it just has to work out well.

The question is whether the telco is any good at managing such a multi-faceted and eclectic business; evidence suggests it is not.

Firstly, the content business unit is incredibly fragmented. We are aware that you need different brands to appeal to different demographics, but it is quite extraordinary at AT&T where you have DirecTV, DirecTV Now, U-verse, HBO Max, HBO Now, HBO Go, Watch TV and DC Universe. It’s scattered, chaotic and overlapping.

Of course, none of this would matter if the unit was growing and making money, which leads us onto the second point. The content division is costing AT&T a lot of money, while subscriptions are disappearing faster than toilet roll in the first days of lockdown. During the latest earnings call, AT&T executives somehow had to defend losing 1.03 million TV subscribers.

Activist investor Elliott Management, which owns roughly 1.2% of AT&T, has already kicked up a stink regarding the diversification strategy, though this is hardly surprising. This is a company which focuses on forcing asset disposal to hike share price. It is a successful business model for Elliott Management, but it is questionable whether the long-term interests of the company is at the heart of the strategy. Forcing AT&T to sell content assets and purely focus on connectivity is not necessarily a sensible idea for the long-term.

CEO Stankey will have his resolve tested in the first few months of his tenure here. He has explicitly stated the DirecTV business unit is not for sale but will also be acutely aware of the dangers of resisting the demands of investors. After all, Stankey was placed in charge of AT&T following Randall Stephenson being ushered out the exit under the guise of retirement.


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Online gaming seems coronavirus proof, but is it recession proof?

Online entertainment and gaming companies are seeing COVID-19 surges in revenues, but are these businesses in a position to resist the pressures of a global recession?

With many countries around the world entering into recession due to the impact of the coronavirus pandemic, online gaming companies will face challenges like never before. Let’s not forget, this is a segment which did not exist during the last major financial downturn, the ‘Great Recession’ of 2008, and it is almost entirely reliant on discretionary income.

This is of course a massive question which should not be taken at surface value, but the up-coming recession has the potential to completely turn this industry on its head. However, for the moment, there is money to be made thanks to circumstance.

How are the gaming companies getting on now?

In short; very well.

Activision Blizzard has released its 2020 first quarter results, and while the figures might be down on the same period of 2019, outlook is considerably better than the forecasts provided by the company on February 6.

Total revenues for the three months ending March 31 were $1.79 billion, down 2.1% year-on-year, but 9% up on the guidance which was offered to investors in February. This guidance was offered before the full impact of COVID-19 was comprehendible, so it understandable that estimates were off.

The Call of Duty title has been credited with much of the success, most notably the mobile game which was launched in late-2019 and the Warzone addition. Warzone was launched under a free-to-play business model, with in-game purchases, and has attracted more than 60 million users.

Elsewhere, Electronic Arts has also released financial statements for the period ending March 31. Total revenues for the three months increased 14.4%, 3% higher than what was forecast in January while net income was up 5% on the guidance offered. Digital revenues now account for 78% of the total, a transformation which has been taking place over the last few years.

FIFA 20 and Madden NFL 20 both excelled for Electronics Art in the sports gaming segment, with the latter recording the “highest engagement levels in franchise history”, while Apex Legends was the most downloaded free-to-play game on the PlayStation platform in 2019 and continued to excel through 2020.

These are only two examples of gaming companies who have benefitted from societal lockdown protocols, but there are numerous others including Microsoft with Xbox and its cloud gaming platform Project xCloud.

In short, more people are locked in doors and need entertaining. More are turning to gaming.

Telco data backs up the financials

With more people staying at home, there was a risk strain would be placed on broadband networks as these are assets which have not been deployed with the current societal lockdown in mind.

Video conferencing is on the up, content streaming is skyrocketing, and gaming is entertaining adults and children alike. All of these elements add up to pressure on the network, though many are performing admirably.

In March, Telecom Italia Luigi Gubitosi suggested network traffic had increased by as much as 70% in some regions, with Call of Duty and Fortnite usage some of the more prominent contributors. Performance of the networks were a worry, but these fears have now been addressed.

Who should we be keeping an eye on?

There are a lot of companies who will be releasing financial statements over the next week, all of which will be inclusive of at least some of the lockdown period.

  • 7 May: Nintendo
  • 13 May: Tencent
  • 13 May: Nexon
  • 13 May: Sony
  • 14 May: Ubisoft

Due to the number of private companies and start-ups in this segment, it is difficult to gain full visibility into the financial gains, but usage reports and download statistics can help. Ultimately, it is a fair assumption this is a segment of the technology industry which is benefitting from the on-going COVID-19 pandemic.

The financial risks have been predicted

In October 2019, the International Monetary Fund (IMF) held a press conference during which the risk of indebtedness was discussed in detail.

“In the event of a material economic slowdown, the prospects would be sobering,” said Tobias Adrian, Director of the Monetary and Capital Markets Department of the IMF.

“Debt owed by firms unable to cover interest payments with earnings, which we refer to as corporate debt at risk, could rise to $19 trillion in a scenario that is just half as severe as the global financial crisis.”

$19 trillion would account for 40% of the total corporate debt in the worlds’ eight largest economies. Of course, much of this rhetoric refers to traditional organisations and those who are already in precarious situations, but it does demonstrate risk.

Adrian stated six months ago that there was a corporate debt bubble building. The accessibility of borrowing facilities over the last decade, as well as tendency to stretch asset valuations, has led to a tsunami of debt. External debt has risen to 160% of exports according to Adrian, compared to 100% in 2008.

This does not necessarily directly correlate to the online gaming sector, but it is good to place the current situation into context. Last October, the IMF warned of a corporate debt bubble which would burst during a recession, compounding the misery and extending the financial downturn. This is the reality which the world is facing today.

Could be a short, but sharp downturn

Coutts bank has recently suggested the financial downturn would be a recession, but the depth would not extend to a depression.

“The current recession will without doubt be very deep and widespread,” the company said in a blog post. “Unemployment has risen significantly, and a wide range of sectors are affected.

“But we think the recession will be short-lived, and that’s the key to our cautious optimism. With economic activity plunging so deeply, even a slow, partial re-opening of the economy is likely to lift activity from these extreme lows.”

Although financial data demonstrated the downturn has been dramatic, there are few deep-seated systemic problems standing in the way of a recovery. The economy will not bounce back overnight, but recovery should be swift assuming there is not a secondary wave of infections.

This is the big question which many companies will be facing; how long will the recession last?

There will be an inflection point on the horizon

Companies who are benefiting from the societal lockdown will have to be wary of the inflection point in fortunes.

People being locked indoors is fine for a while, but soon enough it will start having a very material impact on the economy. When this happens, unemployment could rise, and consumer spending habits are altered. Discretionary income could disappear, and belts would be tightened as a result.

In this scenario, money spend on online gaming habits would almost certainly be cut back, turning the fortunes into flounders.

What is worth noting is this is based on assumption. The online gaming segments were nowhere near as prominent as they are today. In 2008, online gaming was a niche, it was pre-4G hitting mainstream markets while few console games had the internet appeal they do today. eSports would have been considered an absurd idea.

We cannot explicitly state what would happen to the gaming industry during a recession, as there is no precedent, but it is a safe assumption that it would not do very well.

What could happen?

Speculation is always a good bit of fun and should the gaming industry head towards uncomfortable times there certainly could be a dramatic amount of disruption.

There are of course multinational corporations who have profited from the shift to online gaming, but there are numerous start-ups who have shot to fame on the back of a viral hit. The likes of Angry Birds catapulted Rovio to fortunes, while Imangi Studios has experienced sustained success from less complex games such as Tempe Run.

Outside these blockbuster hits, there are thousands of developers who have profited handsomely from online gaming, ensuring the ecosystem is incredibly wide and diverse. Many of these companies are still private, spurred on by revenues flowing through the app economy. Should a recession halt this flow of cash, these companies would suffer.

Industry consolidation could be a reality, with multi-nationals snapping-up cut-price opportunities. Tencent is one company which has grown via acquisition, taking up stakes in the likes of Riot Games, Supercell, Activision Blizzard, Glu Mobile and Grinding Gears Games. Organisations like this must be licking their lips with a prospect of a recession; an opportunity to grow a digital empire through the acquisition of distressed assets.

Venture Capitalists will also have an eye on this area, though this would allow the start-ups to maintain some level of independence. They may have to hand over stakes at depreciated valuations to do so, however.

Interestingly enough, a recession could also present a significant opportunity for the ad-supported, free games. Online advertising demand might decrease, but it certainly wouldn’t disappear entirely. And consumers will still have to be entertained. This could supercharge a segment which is often overlooked in favour of more attractive cousins in the online gaming ecosystem.

Just enough but not too much

The fortunes of the online gaming industry are hanging in the balance somewhat. Yes, societal lockdown is benefiting this segment right now, but recovery will need to come before the inflection point.

The longer this lockdown persists, the greater the risk of a longer-term recession and a downturn for the online gaming segment. Just enough lockdown is a profit machine, too long could mean a very detrimental net loss.

Tencent profits as gaming surges during COVID-19 pandemic

The gaming industry might face similar production challenges as film and TV, but revenues are surging and few are profiting more than Hong Kong’s Tencent.

With more than 70 countries and territories around the world under lockdown protocols to combat the spread of COVID-19, backgammon and scrabble can only get you so far to fight off the boredom. The Netflix earnings call confirmed millions more are signing-up for video streaming subscriptions, and SuperData is suggesting the gaming segment is also benefiting considerably from this unique predicament.

For the month of March, gaming revenues across the world exceeded $10 billion, the most profitable monthly period on record. Mobile gaming took the lions share of revenues, though PC and console gaming also saw material increases in digital revenues.

Ranking of gaming revenue by category
PC Console Mobile
Dungeon Fight Online (Neople) Animal Crossing: New Horizons (Nintendo) Honour of Kings (Tencent)
League of Legends (Riot Games) FIFA 20 (Electronic Arts) Gardenscapes (Playrix)
Crossfire (Smilegate) MLB The Show 20 (Sony Interactive Entertainment) Candy Crush Saga (King)
Fantasy Westward Journey Online II (NetEase) Doom Eternal (Bethesda Softworks) Last Shelter: Survival (Long Tech)
Doom Eternal (Bethesda Softworks) Call of Duty: Modern Warfare (Activision) Pokémon Go (Niantic)
Counter Strike: Global Offensive (Valve) NBA 2K20 (2K Sports) Coin Master (Moon Active)
Borderlands 3 (2K Games) Grand Theft Auto V (Rockstar) Roblox (Roblox)
Half Life: Alyx (Valve) Fortnite (Epic Games) Monster Strike (Mixi)
World of Warcraft West (Activision) Tom Clancy’s Rainbow Six: Siege (Ubisoft) Clash of Clans (Supercell)
World of Tanks (Wargaming) Madden NFL 20 (Electronic Arts) Mafia City (Yotta Games)

While the fortunes of this segment are quite evenly spread throughout the ecosystem and the world, it should be worth noting that Tencent, the Hong Kong-based internet giant, is profiting considerably. Not only does it own Honour of Kings, an immensely popular mobile game in China, it has a 5% stake in Activision, 5% in Ubisoft, 40% of Epic Games, 84% of Supercell and 100% of Riot Games.

Few can compete with Tencent when it comes to throwing weight around the gaming segment. Looking at the last quarterly statement, revenues from online games alone accounted for $4.3 billion, just under a third of total revenues.

Across the gaming segment, console revenue rose 64% from February to March, PC revenue increased 56%, while mobile gaming revenue was up 15% year-on-year to $5.7 billion. This is a segment which is often ignored by the traditional connectivity industry, though it is quickly growing. Aside from these numbers, the fact that Twitch, a video platform for gamers, has grown to 15 million Daily Active Users (DAUs) also demonstrates this.

Netflix reports surge in subscriptions and revenues thanks to COVID-19

As expected, Netflix has experienced a material benefit from many societies being placed under lockdown thanks to the on-going coronavirus pandemic.

Revenues for the three months ending March 31 stood at $5.768 billion, a 27% year-on-year increase for the quarter, while the number of subscriptions globally was up 22.8% to 182 million. With many societies forcing citizens to stay at home for the vast majority of the day, it is unsurprising Netflix is benefitting from the current situation.

Interestingly enough, Netflix also spent far less over this three-month period on marketing activities than it had before, year-on-year 18% less in fact, though any gains here were partly offset by the additional $81 million which was allocated to technology and development.

“At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term,” Netflix said in the letter to shareholders. “Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth.

“In our case, this is offset by a sharply stronger US dollar, depressing our international revenue, resulting in revenue-as-forecast. We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon.”

The issue which Netflix faces in the long-term is one of production, though this is a challenge which the entire segment is coming to terms with. All filming has effectively stopped globally, and while Netflix will have content ready to launch over the coming months, the severity of the impact to new content launches will depend on how quickly normality can return to society.

This is a risk for the industry, but it is one which can be managed to a degree. Writing can still continue, as can production of animated content, though there will certainly be an impact. However, this should be balanced by the gains which Netflix is seeing through this period of societal lock-down.

“A surge in subs is notable which will have a positive impact on revenue over subsequent quarters,” said Paolo Pescatore of PP Foresight. “Unsurprisingly, engagement is going through the roof and will proliferate over coming months.

“You should expect to see users think twice about how much they spend with their current TV provider and may cut back/substitute in preference for online video streaming services. For now the future of SVOD remains rosy.”

Google starts offering free access to Stadia

Rolling out over 14 countries, Google is offering free access to its cloud gaming platform to help with boredom as the world ponders how long the lockdown with persist.

The two-month freebie will be offered as Google attempts to scale its cloud gaming platform in the face of fierce competition from the likes of Microsoft and Nvidia. Users will have instant access to nine titles, and for those who have already signed-up, payments will be suspended for the period.

“We’re facing some of the most challenging times in recent memory,” Phil Harrison, General Manager of Stadia, wrote in a blog post. “Keeping social distance is vital but staying home for long periods can be difficult and feel isolating. Video games can be a valuable way to socialize with friends and family when you’re stuck at home, so we’re giving gamers in 14 countries free access to Stadia Pro for two months.”

This is likely to drive an increase of sign-ups for the business, though Google has already said it will apply controls to bandwidth to ensure unnecessary strain is not placed on local networks. Default screen resolution will be dropped from 4k to 1080p, and while most will not notice a significant drop in gameplay quality, there is an option to choose your data usage options in the Stadia app.

Although this is a pleasant announcement for Google, one which we sure many gamers will appreciate, but there is also an upside for the internet giant. This could be viewed as a promotional offer or free trial luring some users onto the platform who might not have been tempted before. Perhaps, some might be tempted to dip into their pocket for $9.99 after two months of gameplay.

LG doubles-down on gaming and entertainment with K-Series launch

With IFA just around the corner, it would be fair to assume a tsunami of consumer devices launches are on the horizon, and here, LG has kicked-off its own efforts.

The mid-range K50S and K40S smartphones will be available for consumers in Europe, LATAM and Asia to purchase in October, and it appears LG is continuing its quest to find a niche in the gaming and entertainment world.

“These new K series devices offer an optimized multimedia experience that are competitive with the best smartphones in the price range,” said Morris Lee, SVP of mobile communications at LG. “With enhanced screens and more versatile cameras, the K50S and K40S represent exceptional value that demonstrate LG’s commitment to putting consumers’ needs first.”

The devices themselves bring larger screens than previous models, 6.5-inch for K50S and 6.1-inch for K40S, as well as a shift in the placement of the front-facing camera to maximise real-estate. New audio components have been introduced with DTS:X 3D Surround Sound, while a 4,000mAh battery for the K50S and 3,500mAh for K40S will offer extended usage. Both devices run on the latest Android OS, Pie.

Looking at the chipset, both models will incorporate 2.0 GHz Octa-Core, promised to enable smartphones to carry out more advanced tasks such as handling high resolution videos and graphic-heavy games without draining the battery, making the devices capable and efficient.

Gaining attention from today’s consumer can be a tricky task, and while other manufacturers largely seem to be focusing on narcissism with advanced cameras and AR features, LG appears to be focusing more acutely on gaming and the consumption of content.

We have already been treated to this strategy at EEs 5G launch back in May, when Head of LG Mobile UK Andrew Coughlin showed us the 5G prototype device. The product has been designed with multi-taskers in mind, with the option to clip the smartphone into a separate model, adding a second screen. The screens work independently, allowing for two applications to be run simultaneously, or potentially together with the bottom screen acting as a controller for games.

This is strategy which appears to be spread throughout the portfolio, and it is a smart idea.

Gaming is one of the fastest growing markets in the digital economy, and with the emergence of more cloud gaming platforms such as Google Stadia or Nvidia GeForce NOW, accessibility will also increase. A recent report from PwC suggests the German gaming market will grow by 5.2% a year between 2019 and 2023, though this seems to be moderate growth in comparison to other markets.

Research from GlobalData suggested the globally the video games market generated $131 billion, though this could increase to $300 billion by 2025. The surge in growth will be led by smartphone gaming, though as the newly emerging cloud gaming platforms are somewhat of an unknown entity, who knows what the actual figure will be.

On the entertainment front, there is no secret consumers like to watch content on their smartphones, but again, this is becoming increasingly accessible thanks to larger data tariffs and improved wifi in public spaces.

LG will have to do a lot to cut through the noise considering the massive marketing budgets of its rivals but craving a niche in the gaming and entertainment arena is certainly a smart move.

Netflix India looks for growth in mobile-only subscriptions

Netflix has announced it will launch a mobile-only version of its service in an effort to gain traction in one of the worlds’ fastest growing digital economies.

With the international markets looking like the most promising growth opportunities for Netflix in the future, the team will have to adapt the service to context. India is a market which has promised a lot over the last couple of decades, but it is only in recent years the hype could be realised.

For INR 199 per month (roughly $2.80) subscribers will be able to sign-up to mobile-only access to the entire Netflix content library. There might be a few conditions which will frustrate some demanding consumers, but this is a very intelligent move which could prove to be a new means of engagement around the world.

“Our members in India watch more on their mobiles than members anywhere else in the world and they love to download our shows and films,” said Ajay Arora, Director of Product Innovation at Netflix. “We believe this new plan will make Netflix even more accessible and better suit people who like to watch on their smartphones and tablets – both on the go and at home.”

Looking at context, India is a country which is going through a delayed digital revolution. It might have been hyped as the holy grail for digital companies in the past, but it is only since the introduction of Reliance Jio two years ago that the digital revolution gained traction. Jio severely undercut rivals on price, democratising the consumption of data for the masses. Adoption of digital has been rapid and is sustaining the gains.

According to the Ericsson Mobility Report released last month, Indians consume more data than any other nation. Data usage per smartphone at an average of 9.8 GB per month, which is expected to almost double to 18 GB by 2024. The introduction of Jio and its disruptive data tariffs are pinned down as the catalyst, with the telco forcing rivals to drastically alter their offerings to consumers.

From an entertainment perspective, Netflix has pointed to a FICCI-EY 2019 report which suggest Indian consumers spend 30% of their phone time, and 70% of data allocations on entertainment. This is a trend worth paying attention to and it might come as a surprise few have capitalised on it to date, aside from Jio of course.

There are a few conditions to be aware of however. For INR 199, resolution will be limited to SD 480 pixels, only 100 titles will be downloadable to start with and Netflix will prevent any casting to TVs. This will frustrate a few consumers, but the price is a reasonable trade-off for such limitations.

In terms of the potential, this is a very good strategy from Netflix, which has had to explore new initiatives to gain traction outside of its domestic market. The international markets represent the greatest opportunity for growth in the future, the US currently accounts for roughly 48% of current revenues, though it will have to appreciate a cookie cutter approach to expansion will not sustain the growth investors are seeking. These investors are already a bit irked with recent figures, share price has declined 15% since the financial results last week, though this should provide fuel for optimism.

The Netflix team has suggested it has no plans to introduce such an offer to other markets just yet, though success might change this. Although we see Netflix subscriptions as on the cheap side in the developed markets, the same perception will not exist everywhere. This could certainly be an option to double-down on growth in developing markets around the world.

Netflix share price slumps 11% as Q2 falls short of expectations

Netflix blames price increases and an under-performing content slate for poor performance in the second quarter of 2019.

Revenues and profits might be up, but these are two metrics which have never seemingly bothered Netflix shareholders that much. What seems to be bothering the twitchy investors is tepid subscriber growth and increased competition in the streaming segment; ultimately these will both lead to the revenue and profitability metrics, but the point is to cast an eye on the horizon not today.

And it appears some investors do not share the same optimism as the Netflix management team as share price slumps 11% in overnight trading.

“… as you can see over the past 3 years, sometimes we’re forecast high,” CEO Reed Hastings said during the earnings call. “Sometimes we forecast low. This is one where we forecasted high. There was no one thing.

“And if I think about three years ago, we were also light, and we never really were confident of the explanation. Then, we were $2 billion in quarterly revenue. Now, we’re going $5 billion. And so, it’s easy to over-interpret the quarter membership adds, which are a bit noisy. So, for the most part, we’re just executing forward and trying to do the best forecast we can.”

Subscription numbers are of course all important for what effectively is a single revenue stream business model, and the numbers aren’t the most flattering. 2.7 million net additions compared to the 5 million which were forecast at the beginning of the quarter, including a net loss of 130,000 in the US. When you consider the US currently accounts for roughly 48% of total revenues, this becomes an issue.

Hastings is playing his hand exactly as you would expect. In the early years, Netflix told investors not to worry about the money as subscriber gains are going through the roof; the money would come eventually. Now, Hastings and co. are telling investors not to worry about subscribers because the money is rolling in.

Netflix subs

What is worth noting is that one bad forecast, one dip in subscribers, does not engulf Netflix in flames. Its not ideal, but as long as it doesn’t become a trend there shouldn’t be much to worry about.

Understanding why is of course critical however should Netflix want to rebound to the 7 million subscription gains it is promising over the next three months.

Firstly, price increases have not landed well with the subscribers according to CFO Spencer Neumann. The biggest churn rates across the world were in the markets where Netflix had announced price increases, the US for example, though strong performance in Q1 and a poor content slate over Q2 were also factors which contributed to the numbers.

Neumann suggests the first quarter of 2019 was particularly strong, perhaps pulling forward subscriptions and emptying the sales funnel for the second quarter, while the team has suggested the content slate was not as attractive as previous periods. This should change in the future however as the business moves from a licensing model to one which is more governed by original content.

Over the next couple of years, certain companies are going to start pulling back content from the Netflix catalogue, Disney and WarnerMedia/AT&T are prime examples. Not only will this decrease the variety of content on the platform, removing some fan favourites as well, but it will also strengthen the opposition.

Netflix has not blamed competition for the poor performance this quarter, suggesting there has been not material change to the competitive landscape just yet, though some shareholders might be getting a bit worried. Netflix is facing some difficulties at the moment, while bigger disruptions are on the horizon with Disney and AT&T readying their own streaming services.

Netflix Financials

What is also worth noting is content; Netflix is the market leader in the streaming market and is in the strongest position to deal with increased competition. There of course will be some difficult conversations to be had in the future, but this is still a business heading in the right direction.

Total revenue for the quarter was $4.9 billion, up 26% year-on-year, while the management team is forecasting $5.2 billion for the next three months, a 31% year-on-year jump. Globally, paid memberships increased to 151.5 million, while there were more than 7 million free trials across the second quarter.

On the pricing front, although this might have a slight negative impact on churn and subscription gains in the short-term, collecting additional revenue each month is only going to be a positive in the long-term. Netflix is still very affordable for the majority.

Looking forward, the team has suggested the first couple of weeks of the current quarter has demonstrated an acceleration in subscriptions, while churn is returning the levels experienced prior to the price increase. And while it might seem internet TV is taking over the world, there is still plenty of room for growth according to the team, both in terms of the linear/streaming dynamic and the opportunity on mobile.

Another factor to consider is the spend which is being allocated to original and localised content; few in the industry can compete with the Netflix numbers in this column. And as content becomes more fragmented through the various streaming platforms, the more original content Netflix produces, the more attractive is becomes as a service to consumers.

Netflix is still in a very strong position, but it is not going to have the same free-reigning dominance as it has experienced over the last few years. A diluted content library, price hikes and increased fragmentation will have a say in the fate of the business, but it is still in the strongest position of this increasingly competitive segment.

Is the VR market primed to pluck?

For all the promise of virtual reality (VR) the consumer appetite remains as somewhat of an unknown. Theoretically the technology could revolutionise the entertainment space, but we’re currently in a bit of a waiting game.

HTC is ready to gamble the consumer appetite, supporting ecosystem and product portfolio has evolved to such a position to provide the fuel for a subscription-based library of premium VR content.

“We have built a new model for VR that shines a light on the great library of VR content this industry has developed and gives users a reason to spend more time in headset than ever before,” said Rikard Steiber, President of Viveport.

“At the same time, we’re increasing developer reach and potential revenue as more developers can monetize a single Infinity user. We believe this model matches how consumers want to experience VR”

In pursuit of simplicity, Viveport is effectively a ‘Netflix for VR’. Customers can either pay $12.99 a month or $99 a year to access a VR content library with more than 600 titles already listed. As with other subscription models such as Netflix for content and Spotify for music, customers will have unlimited access to all content hosted on the platform.

However, you still have to answer the question as to whether the VR segment is ready to deliver the much-anticipated riches.

For the profits to be made, three criteria have to be satisfied. Firstly, is there an ecosystem which is creating enough volume of content, wide enough variety and immersive enough experiences. Secondly, is the hardware priced to allow the opportunity to generate mass market penetration. And finally, is there enough demand from the consumer.

With 600 titles already listed on the platform, this would suggest there is a large enough ecosystem in place to create the content. HTC is promising more titles, as well as some co-ordinated launches such as ‘Angry Birds VR: Isle of Pigs’. Secondly, the price of VR headsets has been coming down recently, and while it is still expensive, it is not prohibitively so. Consumers can spend thousands at the top end, but then again Google Daydream View can be purchased for £69. The breadth of products is now available to make this segment potentially viable.

The final criterion is the consumer appetite. This is incredibly difficult to gauge without launching a product, but as long as there are early adopters it is a good time to launch. Let’s not forget, Netflix was not an immediate success, it took time to develop the monstrous subscription base it has today, but it steadily attracted more and more thanks to it being first to market, while also offering an affordable (and very good) experience. Much of this was done through word of mouth.

Another lesson which HTC will have to learn is that enough is never enough. Netflix has maintained it position as the leader in the content world because it is constantly driving for more. Last year, the team spend almost $8 billion on content acquisition and creation, a number which will drastically increase this year. Not only is Netflix funding bigger-budget productions, but it is also expanding the local content libraries around the world. With Viveport, HTC could do the same, but it needs to ensure it is constantly expanding.

HTC has crafted itself a leadership position in the VR world, and the raw materials are currently in place to make this a profitable segment. Add improved connectivity with fibre penetration increasing and 4G constantly improving to the above three criteria, and HTC could be onto a winner.

Who knows, maybe in a few years’ time we’ll be referencing Viveport as the heavyweight of the entertainment space, not Netflix.

EE takes step towards content aggregator model

Content is a tricky topic to discuss around EE and BT, such is the scale of the disaster over the last few years, but a tie up with Amazon Prime and MTV Play is a step in the right direction.

The new content offer will see EE customers receive six-month memberships to both Amazon’s Prime Video service and MTV Play. The news starts to make a more comprehensive content platform for the MNO, with customers already able to access Apple Music and BT Sport, all of which is covered under the EE Video Data Pass, a zero-rating initiative available to all customers.

“It’s our ambition to offer our customers unrivalled choice, with the best content, smartest devices, and the latest technology through working with the world’s best content providers,” said Marc Allera, CEO of BT’s Consumer division.

“In offering all EE pay monthly mobile customers Prime Video and MTV Play access, in addition to BT Sport and Apple Music – we’re providing them with a wealth of great entertainment they can experience in more places thanks to our superfast 4G network, and soon to be launched 5G service. So, if they want music on a Monday, telly on a Tuesday, films on a Friday or sport on a Saturday, we’ve got something for them.”

While the content play over the last couple of years have been pretty dismal this is an approach to content and diversification which we like. It allows the telco to leverage the scale of their customer bases, while also adding value to the existing relationship with said customers.

Content fragmentation is an irk for many customers, not only because of the various apps which need to be installed, but also the number of different bills. EE doesn’t seem to be addressing the first issue but consolidating bills to a single provider might well be of interest to some customers. It also has the advantage of making EE a ‘stickier’ provider, perhaps having a positive impact on churn.

“Content is a key differentiator for telcos,” said Paolo Pescatore of PP Foresight. “However, consumers are now spoilt for choice resulting in too much fragmentation. Telcos are very well placed to aggregate content, integrate billing and provide universal search. Whoever achieves this first will have a significant advantage over their rivals.”

Sky is one of the companies which has had a good crack at addressing the fragmentation challenge, Sky and Netflix content is available on the same platform and through the same universal search function, though EE’s push on the mobile side would certainly attract attention. Consumers no-longer consider entertainment as simply for the living room, new trends show more preference for on-the-go content.

While this is a step in the right direction for EE, this is only one step. The content options need to offer more depth to meet the demands of the user, while streamlining all the content into a single app would be a strong step forward. It would certainly be difficult to convince partners to hand over customer experience to a third-party, Netflix has shown much resistance to this idea making the Sky tie-up all the more impressive, though whoever nails this aspect of the aggregator model would certainly leap to the front.