April 28, 1997Trowelling stucco onto one of the light scoops in the East Crescent.
Liberty Global has paid roughly €632.5 million for a 12.65% stake in the Netherlands’ largest cable operator Ziggo. Through the deal, Liberty has acquired 25.3 million Ziggo shares from Barclays Capital Securities for €25.00 per share, giving it an almost 13% stake based on the shares outstanding as of December 31, 2012.Commenting this morning, Liberty said that the acquisition was an “attractive opportunity” to make a strategic investment in a market where it already has a strong presence through its UPC Netherlands subsidiary.“The purchase price is also financially attractive given the stock’s approximate 7.4% dividend yield, which is implied by Ziggo’s expectation that it will pay €370 million of dividends during 2013,” the firm said.The deal comes just days after Barclays inadvertently acquired a 14.2% stake in Ziggo after failing to find enough buyers for a block of shares it agreed to underwrite.Private equity owners Cinven and Warburg Pincus moved last week to sell 40 million shares in the operator, the equivalent of a 20% stake. However, the share sale, which was completed on March 19, left Barclays as Ziggo’s biggest shareholder after it failed to find enough buyers. Barclays had guaranteed the sale at €25.05 a share last week.Liberty is funding the acquisition with a non-recourse margin loan and existing liquidity, and does not require regulatory approval as it is taking a minority, not a controlling stake in Ziggo.The deal is Liberty’s latest of the year, after the firm agreed a blockbustert US$23.3 billion (€17.9 billion) buyout of Virgin Media in February.
Virgin Media will start to contact customers about upgrading to ultrafast broadband this week, and announced that Vivid will be the new brand for web connections above 100Mbps.Virgin said it will start to explain how users can opt-in to an upgrade from October 1, 2015 and will let broadband customers go from existing speeds of up to 50Mbps, 100Mbps and 152Mbps to more powerful speeds of 70Mbps, Vivid 150Mbps and Vivid 200Mbps.Using DOCSIS 3.0 technology, Virgin claims that it will deploy the superior speeds in “record time” with 90% of customers being able to upgrade by the end of 2015.“Our message is simple: if you want to be certain that you are signing up to true ultrafast broadband speeds of 100Mbps and above, Vivid from Virgin Media is the new standard,” said Virgin Media’s managing director of consumer, Gregor McNeil.Earlier this month, Virgin committed £25 million (€34 million) to upgrade homes and businesses in Nottingham, enabling them to receive ultra-fast broadband services. In June it also began rolling out ultrafast broadband in Manchester in the first phase of its £3 billion broadband investment plan, dubbed Project Lightning.The news comes a day after Sky announced it was connecting its first customer to its new ultrafast fibre-to-the-home (FTTH) broadband network in York in the UK.The rival UK operator said its ultrafast broadband customers will be able to receive broadband speeds of up to 940 Mbps, with Sky building the FTTH network in partnership with TalkTalk and CityFibre.
All good things come to an end. And so it will be with Netflix’s growth spurt. At some point, the pioneering online video provider will run out of new customers willing and able to subscribe – provided it sticks to its current business model. But what if Netflix were to pursue more radical options?It’s first worth stressing that Netflix’s model – offering ad-free, subscription-based access at largely similar prices worldwide – has plenty of distance to run. Although the number of net new Netflix subscriptions peaked in 2017, Ovum forecasts that the company will still be adding over 13 million annually, even in five years’ time.By then, however, its annual growth rates in many of the world’s largest markets will have slowed from double-digit to single-digit percentages. In the US, Netflix’s subscriber base will grow by just 0.2% in 2023 (see Figure 1). And despite its global expansion, the US will still be a hugely important market for the company, accounting for about a third of subscriptions and revenues.So how else can Netflix grow, beyond simply raising its prices? Ovum has identified three options.1. Make mobile video even more affordableOvum forecasts that over 500 million people in India will have smartphones and data connections powerful enough to watch online video in 2022, yet Netflix will have fewer than 5 million subscriptions by then. Why? It’s about affordability.Netflix has taken several steps to make its service more accessible and affordable in emerging markets, such as streaming technologies that consume minimal amounts of data and enabling people without credit cards or bank accounts to charge their subscriptions via their mobile phone bills.But the main sticking point is Netflix’s US$7.99 entry-level price point – great value for consumers in developed markets but too expensive for many in emerging markets, where disposable income levels are often several times lower. Last month, the company was revealed to have acknowledged this issue by trialing a $4 per month “mobile-only” plan in Malaysia for access on one phone or tablet at standard definition quality.For hundreds of millions of consumers in emerging markets, roughly halving prices won’t be enough. Put simply, subscription services aren’t the no-brainer they are in developed countries. In Malaysia, 75% of mobile connections are pay-as-you-go. In India, 95% are. If Netflix really wants to move the needle in these massive markets, it will need to explore more radical pricing and bundles through closer partnerships with local mobile operators.2. Bring a truly fresh take on TV advertisingTo be 100% clear, adopting a Hulu-like model where viewing is interrupted by ads before or during TV shows and movies would be a bad move for Netflix. Using ads to offer a “free” version would risk cannibalising its paid subscriber base, while showing ads to paying customers would ruin the viewing experience.Instead, Netflix could invest in evolving product placement, the practice of including brands within the content and storylines of TV shows and movies. Around three in four Netflix shows already feature at least one example of this covert form of advertising, according to specialist agency Branded Entertainment Network. Augmented reality-like technology could take the concept to the next level, digitally inserting different products into videos for different viewers, so say, one sees a Coke and another a Pepsi.There’s already a precedent in another globalised form of media, sport, with broadcasters overlaying “virtual advertising” over banners at matches. Vendors such as Accenture and Ryff are working on bringing more advanced technology to movies and TV shows. To put this opportunity in perspective, various estimates suggest advertisers will spend over US$20 billion on product placement this year; subscription online video services will generate US$32 billion, according to Ovum’s forecasts.3. Reinvient itself as a TV ‘re-intermediary’Netflix once looked set to become a kind of “Spotify for TV” – before content providers realised that selling their most valuable content to a single, increasingly powerful intermediary was not such a good idea. Netflix has since invested heavily in exclusive and original content to become more like HBO’s TV brand, while HBO, Disney, and others have sought to become more like Netflix.But few established media companies will come anywhere near their inspiration’s level of success. In 2023, Netflix will account for around one in three online video subscriptions worldwide (excluding China, one of the few places where the service is not available). In many countries, its market share will be well over 50%, leaving most rival apps fighting over relatively small numbers of subscribers.Netflix could use its scale to help these providers to survive, by reinventing itself as an Amazon Channels-like aggregator handling marketing, technology, and customer support in exchange for a cut of fees from subscriptions it brokers or manages.The question is whether another company will get there first – not least Amazon. The battle to become the platform that profits most from helping consumers navigate today’s fragmented TV landscape will be fought by the biggest names in media and tech, including AT&T Time Warner, Apple, Comcast Sky, Google, and Liberty Global. Netflix will be increasingly dependent on such “re-intermediaries” for attracting subscribers, billing, and driving viewing – unless it becomes one itself.Playing safe versus changing the gameNever underestimate the power of one big idea – and one company’s ability to deliver on its promise. But no single idea has infinite potential. Sooner or later, Netflix will need to look beyond the limits of its current business model – just like when it made the truly game-changing move from DVD rentals to online streaming.Straight Talk is a weekly briefing from the desk of the Ovum’s Chief Research Officer. To receive this newsletter by email, please contact us.