Morgan Stanley Warns of Margin Risk for TalkTalks New UK TV Service

Global financial services firm Morgan Stanley has warned that UK ISP TalkTalk faces a near-term Margin Risk from the costs incurred as a result of funding development and launch of their forthcoming TV service, TalkTalkTV, which will be based off the subscription free YouView (IPTV) platform.

The budget broadband ISP has also continued to bleed customers and last year suffered repeated blows after Ofcom tackled the provider over its poor record of customer support and repeated billing errors. TalkTalk’s success, of which the TV solution is seen as a critical part, largely hinges upon whether or not it can turn the situation around.

Morgan Stanley Statement (Proactive Investors)

“Although cost-cutting since the demerger [from Carphone Warehouse] has exceeded expectations, negative earnings revisions from YouView could lead to share price underperformance in the near term.”

Morgan Stanley, which notes that the ISPs biggest cost could come from the platforms set-top-box units, has subsequently reduced its target price for the group to 170p (down from 190p). But there is some good news, with Morgan Stanley pointing to longer-term benefits from the ISPs TV solution, which is rather optimistic as we’ve yet to see whether or not the product itself will be attractive.

The TV market is aggressively dominated by BSkyB (Sky Broadband) and Virgin Media in the UK, with BT’s own ‘Vision’ IPTV platform having failed to make much of a dent since its launch. Suffice to say that TalkTalk TV will face a similarly tough challenge, although more competition is a good thing and thus we certainly hope they succeed.

As a side note, Morgan Stanley seem to expect TalkTalk’s TV service to launch in May 2012, although as we reported last week (here) the ISPs official line is now pointing towards a “summer 2012” launch window; that’s more than two months away.