Sky is planning to launch an online service to allow customers, including those who do not currently subscribe to its pay-television platform, to watch some of its most popular programmes, including movies, over any broadband connection. Most observers have assumed that this is a response to the arrival of services like Netflix, but it may also be an attempt to anticipate any possible remedies that could be imposed on Sky as a result of its competitive position in the premium movie market in the United Kingdom and Ireland. Meanwhile Sky continues to thrive in tough times, demonstrating that pay-television services are relatively resistant to recession.
Sky was one of the first pay-television operators to embrace a multi-platform approach. In 2006 Sky became the first broadcaster in the United Kingdom to offer programming to download over the internet, including premium movies. This has since evolved into Sky Go, which it will continue to develop as an added value service for existing Sky TV customers, with 2.5 million users in its first five months of operation and 1.5 million unique users in December.
The Sky Anytime+ service that brings video on demand over broadband to Sky+ HD satellite receivers, now has 1.2 million enabled customers, around 30% of the addressable base. This seems likely to grow substantially with news that it will be extended to any home with a Sky+ HD box, irrespective of broadband service provider, and the addition of seven-day catch-up programming from the BBC iPlayer and ITV Player. Following Sky’s strategic investment in Zeebox, apps on the Apple iPhone or iPad will also function a remote control for the Sky box.
The launch of the new internet television service in the first half of 2012 will complement these existing subscription services from Sky and address a broader market, the remaining half of all households that do not subscribe to pay-television. The new service will be available across a wide range of connected devices, including Microsoft Windows and Apple Mac computers, laptops, tablets, mobile phones, games consoles and connected televisions. Sky says there will be flexible pricing options, with no minimum contract. For example, people will be able to pay monthly for unlimited access to Sky Movies, or rent a single movie on a pay-as-you-go basis.
Sky argues that with no need for significant infrastructure investment, the service will open up a new opportunity for customer growth and allow it to monetise its content more widely. Nevertheless, it is a significant step from a company that is still defined by its pay-television offering.
“Alongside the continued growth of our satellite platform, this will be a new way for us to reach out to consumers who love great content, but may not want the full Sky service,” explained Jeremy Darroch, the chief executive of Sky. “It will allow us to make our expertise and investment in content and technology work even harder, extending our options for continued growth.”
The development has been viewed as a response to an increasingly competitive market, with the arrival of Netflix in the United Kingdom and the planned launch of YouView.
As usual, it is a well-timed move from Sky that puts competitors on the back foot. With exclusive deals with all six major movie studios, Sky has access to the movies in the subscription television release window, as well as premium programming including exclusive sports coverage.
Netflix, in contrast, offers more of a bargain bin of movies and non-exclusive programming for a low-cost subscription. Despite being long anticipated, its launch in the United Kingdom seems to have been rather rushed. Netflix rightly expected to enter a competitive market. This rapid response from Sky is not good news for Netflix.
LoveFilm, now wholly owned by Amazon, and others like Blinkbox, now majority owned by Tesco, will also have a tougher time when the Sky service launches and its massive marking machine is brought into operation.
YouView, yet to launch and arguably offering too little too late, will integrate free-to-air broadcast programming with various video on demand options delivered over broadband. Sky could potentially offer its services on the platform, depending on whether it views YouView as a threat or an opportunity. Either way, Sky is offering non-subscribers more options, which weakens the YouView proposition and dilutes the ability of its backers, including BT and Talk Talk, to make much money out of movies.
Ofcom previously referred Sky to the Competition Commission, following its own investigation into the pay-television market. Specifically, it referred to the rights to show movies from the major Hollywood studios in the first pay-television subscription window in the United Kingdom, and the wholesale supply of pay-television packages, including premium movie channels.
The Competition Commission found that Sky had a strong grip on the movie market and sought to encourage greater competition by enabling others to secure rights. It launched a consultation into possible remedies. A provisional decision is due in late March or April 2012, with a final report expected in June or July, and no later than 3 August 2012.
This latest move by Sky may be seen as an attempt to diffuse the charge that it has a stranglehold on the subscription movie business. After all, if anyone with a broadband connection can view individual movies on an à la carte basis, at a fair price, one might argue there is no harm to the consumer.
It may make it harder for other companies to compete on a commercial basis. Whether that is reasonable or not is another matter. The rapid development of online options is rendering debates about movie channels redundant. Consumers now have more choice of viewing options than ever before. That includes the prospect of movie studios going direct to the consumer with initiatives like UltraViolet that attempt to bridge the worlds of retail and online distribution.
There are signs that growth in the number of Sky television subscribers is slowing, up just 40,00 in three months, now at 10.25 million. Of these, over 4 million are high-definition customers, up 138,000 in the last quarter. Sky now has 3.65 million broadband customers and 29% of its customers take a combination of television, broadband and telephony services. The rate of churn remains steady at 9.6%, only fractionally up on the previous year, despite a tough economic environment. Moreover, six month revenue was up 6% to approaching £3.4 billion and operating profits up 16% over £ 600 million.
Sky is continuing to expand its broadband offering. From April it will offer an additional fibre to the cabinet product, using BT infrastructure, initially available to just under 30% of households in the United Kingdom, with increasing coverage over time. Sky also plans to launch a free WiFi hotspot service to subscribers in over 10,000 locations across the country.
Sky appears well placed to respond to new entrants in the online television and video market. Sky is reducing its reliance on traditional pay television in the form of films and football. Increasingly it is becoming a broader provider of entertainment and communications services.