Vodafone earnings demonstrate inability to walk the walk in TV

Vodafone knew full well what was approaching and has been hell bent on hyping up its telco TV service this year – hoping to glaze over the inevitable event of its subscriber base falling off a cliff.

Video losses for the quarter ended September tallied 72,000 across Germany, Italy, Spain, Portugal and the Netherlands, hit hardest in Spain to the tune of 66,000 cancellations– making it a total drop of 98,000 in the country over the last two quarters.

Without premium soccer rights, the European telco’s core TV business has been left vulnerable, a situation Orange and Telefónica in Spain have taken full advantage of. “Going forward, unless football rights are available on profitable terms, we intend to focus our content strategy on premium movies and TV series,” was the weak excuse of a statement from Vodafone in its earnings release this week.

The whole debacle came about when Vodafone decided to stop showing La Liga and Champions League matches due to the apparent unprofitable nature of the content. It has moaned to the EU for some time about how unfair it is that Telefónica controls these rights in Spain, and a deal was cut to allow Vodafone to at least show the sport, now deemed too expensive. Well, a revenue decline in Spain of €45 million over the past two quarters, down to €2.42 billion, with EBITDA down 19% to €542 million, with an operating loss of €88 million, compared to an operating profit of €31 million in the previous six months, hardly screams of profitability, and that comes after scrapping its soccer bill.

On countless occasions we and many others in the industry have said live sports content is the holy grail for operators, and without owning any broadcast rights, particularly soccer in Europe, operators unable to adapt aggressively will experience significant churn in their TV subscriber bases.

Just last week we heard from Vodafone at Cable Next Gen Europe, talking up plans to shift every one of its products over to its cloud platform and we even applauded the technological transformation being carried out at Vodafone. What’s clear this week though, is that consumers have no qualms jumping ship if a TV offering ceases to show live coverage of a country’s national sport, especially when talking about a soccer-mad one like Spain.

It’s all good and well promising a defragmentation project involving a single product centered around cloud TV, but the fact Vodafone refused to continue paying for some of the most watched content, while talking about expanding its telco TV service, reeks of arrogance. And hedging its bets on original content, when we have Netflix, Apple, Disney and more investing unmatchable sums into original titles, just sounds plain dumb from Vodafone.

It is likely that in the long-term, live sports will go direct to consumers – after all why stop some homes getting the sport, just because of an accident of bidding. Once this happens, all the operators who previously paid a fortune for it, will likely partner with such a channel – broadcast or online – but for the time being, it is vital.

People have begun describing Vodafone’s cloud TV platform as the world’s largest and soon Vodafone plans to expand beyond its five-country cloud TV base to greenfield markets, claiming it can launch a full cloud TV service in seven months. It’s worth noting that Vodafone’s TV launch in the UK has been some three years in the making and still has not arrived, and CEO Nick Read said this week that the company is waiting until its broadband business in the UK is successful before launching a TV service. “When we’re successful and we know the fixed broadband product and have a great service, then I want to overlay TV,” he said.

Vodafone now has 1.26 million video subscribers in its Spanish market, a 110,000 year on year decline. Despite not owning any rights itself in the UK, Vodafone takes a rather different stance on live sports, using lucrative Premier League action as a marketing tool for its mobile services, offering up to 24 months of Sky Sports Mobile TV to new subscribers.

An interesting observation from Vodafone’s results were how video churn seemed to have a direct impact on the broadband base, with subscribers cutting off their double and triple play subscriptions and many shifting over to rival offerings. We suspect many have resorted to pirate streaming sites to get their fill of La Liga and Champions League matches, so Vodafone should feel partly responsible for any piracy statistics coming out of Europe.

Vodafone Spain experienced a savage broadband beating of 69,000 terminations in the quarter, totaling 134,000 losses for 2018 so far, to offset sizable gains in Germany, Italy, Portugal and the UK, with smaller losses coming from Ireland and Romania.

This trend was not reflected in Germany, however, where Vodafone saw broadband additions of 69,000 in the third quarter, but with 30,000 fewer TV subscribers, dropping to 7.63 million – leaving it with 9.68 million in total across its European TV footprint.

The core mobile business lost a total of 1.07 million subscribers across Europe in the last quarter, coming primarily from pre-paid losses and leaving it with 82.4 million subs in its major European countries, driven by Italians which continue to aggressively cut ties with Vodafone, down by 136,000 in Q2. Across all of Europe this goes up to 112 million. It has 87.5 million mobile customers at Vodacom in Africa, and total for Africa, the middle East and Asia is up 1.8 million to 163.5 million. Results for Vodafone Idea in India are now quoted separately, arriving a day after the main financial release, showing a loss of 13 million subscribers, dropping to 442 million.

Across the past seven quarters, Vodafone has lost 590,000 mobile subscribers in Italy alone, which the telco has put down to increased competitive pressures.