Playout & Transmission Global Viewpoint – February 2017

Sky Cannibalizes Satellite for All Out-OTT Assault

European satellite broadcaster Sky has decided to cut its own cord completely by making its whole content catalogue including 270 TV channels available online without a dish from an as yet unspecified date in 2018. This goes further than other major DTH operators such as AT&T’s DirecTV in the US, which is still clinging to its satellite base despite having made its play for cord cutters with the launch of DirecTV Now in December 2016.

DirecTV Now is more like Sky’s NowTV which has been available since February 2012, although with live sports in March 2013 and then premium entertainment in October 2013. DirecTV Now lacks some of the operator’s most popular premium content, including The Big Bang Theory and NFL Sunday Ticket service.

Sky is now taking the knife to its own satellite base having decided that the potential gains of a full-on OTT offensive outweigh the losses from its legacy satellite base, which in fact are already registering on the bottom line. Many previously successful enterprises have fallen by the wayside by failing to exploit emerging disruptive trends that requires cannibalizing a previously successful business sector and revenue source at the right time.

Sky has been signaling for several years its determination to avoid that fate and exploit its formidable content catalogue to gain an equally dominant position in the OTT world. While it is unlikely to attain in OTT the same dominance it has enjoyed in the UK pay TV market, its positioning does open up new opportunities across its other European markets, primarily Germany and Italy, where its penetration has been more limited. In those countries, many potential subscribers live in multi-dwelling units (MDUs) that permit attachment of satellite dishes to the outside of the building. According to the weekly media and broadband research paper Faultline Online Reporter, published by Rethink Research, by making its entire channel portfolio available over IP, Sky will gain access to 6 million additional European homes, in addition to those consumers allowed to install satellite dishes but who have refused to do so. Furthermore, Sky has maximized its reach by ensuring that the online service will be available to all broadband subscribers and not just customers of its own Internet service. It is possible though that Sky may offer early access to the new service for its own broadband customers, given that broadband is itself a competitive field with a fierce battle for market share.

Sky already has the bones of its new full OTT-only offering with its Sky Q box.

Sky already has the bones of its new full OTT-only offering with its Sky Q box.

At the same time a number of current subscribers are likely to downscale to the OTT-only version when that becomes available, given that it will be offering the same content, although it is worth bearing in mind that over time the prices between the two are likely to converge. Given the old adage, “it’s the content stupid”, there is no reason to suppose that the online version will continue to cost less than its satellite equivalent as the quality gap continues to narrow. Indeed, it will really become a case of whether the online version will be able to deliver the full range of UHD content. The current Now TV OTT-only offering is restricted to HD at 720p and it is unclear yet whether the new online service will offer live UHD. It probably will not to begin with.

The Sky Q box already available to satellite subscribers and present in 600,000 homes delivers a hybrid service using broadband for delivering on-demand and catch-up content and DTH for live channels. So Sky’s plan for 2018 is in effect to combine the Sky Q offering with Now TV to offer a replica of its full DTH service online with the help of the box. Sky will most likely offer several alternative set tops for the new online service, just as it does at present for Sky Q.

Apart from its desire to be ahead of the curve over IP migration, Sky is being driven by the prospect of expanding revenues through advanced advertising. Sky has already achieved considerable success with its Ad Smart technology enabling ad targeting on the basis of region, post code and content preferences for example, from a total of nearly 1000 audience attributes. According to Sky, Ad Smart has attracted new regional advertisers and cut channel switching during commercials by 48% in the first three break positions of programs. About 70% of Ad Smart customers are new to Sky, having previously spurned its traditional spot. It was no coincidence that at the same time as its cord cutting announcement Sky revealed that it is extending Ad Smart, originally launched in the UK in January 2014, to Italy and Ireland this year.

It is true that, as Faultline pointed out, Ad Smart has been criticized for being too expensive, but that merely reflects the added value of targeted campaigns as against traditional spot ads broadcast to everyone across the whole country. The average price premium for Ad Smart is about eight-fold, so there is a clear opportunity for boosting revenues and with online delivery the scope for targeting is greatly increased, with more potential to address individuals.

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