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Sky Will De-Couple Pay-TV Content From Satellite For IPTV Era

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BSkyB (NYSE: BSY) is acting to head off rising City concerns about the threat from over-the-top connected TV services, by announcing it will launch, by the summer, its own such service that does not require a satellite subscription.

The as-yet-unnamed and unpriced service will offer Sky Movies, Sky Sports and entertainment over a swathe of devices including tablet, mobile, console and connected TV. There will be no minimum contract and “a wide variety of pricing options”.

It may not look like it today, but this may turn out to be one of the most significant developments in Sky’s history.

Sky has offered TV to internet devices since 2006 but, currently, all such efforts, including Sky Go and the Sky News iPad app, are geared at providing enhanced value for existing Sky satellite subscribers. Where Sky has allowed non-satellite subscriptions, they have been so prohibitively priced relative to satellite that the idea has, in essence, been to drive satellite subscriptions.

The risk for Sky was that the new wave of internet TV services – including from consoles, dedicated boxes, integrated connected TVs that ship with thousands of free on-demand services and the emergence of cheaper over-the-top operators like Netflix (NSDQ: NFLX) and Blinkbox – would tempt existing and new consumers away from the core Sky satellite option.

Already, Sky TV sign-ups are slowing – down to 40,000 in Q2, from 140,000 the previous year, Sky announced on Tuesday. “Some people are uneasy about making a long-term commitment right now,” CEO Jeremy Darroch conceded to City analysts.

So it is logical for Sky to turn that threat in to an opportunity – the opportunity to take its top-tier pay-TV content to a new generation of otherwise pay-TV refuseniks, minus the cost of satellite.

Consumers are expected to be able to subscribe to Sky on YouView; TVs from manufacturers like Samsung, Sony (NYSE: SNE) and LG; (SEO: 066570) Xbox; iPad and more.

Sky has been wedded to and defined by its satellite distribution system since launching it in 1990. But, by allowing customers to subscribe to Sky Sports, Sky Movies and so on directly on the internet TV they buy in 2012 and beyond, Sky is de-coupling its content and its distribution platform in the future.

CEO Jeremy Darroch told analysts: “It will give another choice to the 13 million UK households that have chosen not to subscribe to pay-TV. It will be a new way to reach out to consumers who love great content but have no need for the full range of Sky services.” There will be “no infrastructure investment”.

“Beyond the near-term slowdown, structural issues are looming,” writes Bernstein analyst Claudio Aspesi in a research note. “The unbundling of pay-TV appears a direct response to the launch of Netflix, but also seems to suggest that additional growth through the old model of bundled pay-TV through satellite is coming to a natural end in its growth.”

3 Responses to “Sky Will De-Couple Pay-TV Content From Satellite For IPTV Era”

  1. Good thoughts, Adam. I heard they were readying a Champions’ League-only sub on IPTV boxes in time for the next season. That info was obviously a little bit off, but in the ballpark.

    With time-shifting having become a mass sport, not just on pay-TV like Virgin but also on internet TVs going forward, Sky looked exposed on the catch-up front. And, with the coming OTT boom promising to deliver lots of new services to viewers for free or cheap, Sky had to do something.

    On pricing, maybe that will be partly determined by the prices they have to pay the Hollywood studios for their six exclusive contracts, which is likely more than Netflix is paying for scooping up “Moneyball” licenses, no? That could make the monthly price more, but Sky could afford to run it for less…

    The Sky Movies pack on satellite appears to be £16pm ( Would consumers gladly pay, say, £10 for those top-tier movies in the pay-1 window, as opposed to later-window fare from Netflix for £6? Maybe?

    Ultimately, Sky Movies will be competing with Blinkbox on connected TVs, too. And Blinkbox has better fare than all of them because it doesn’t concern itself with subscription rights. It offers the first-run window for PPV.

    And that’s attractive to me as a consumer. £3-ish per movie, only when I want to pay it.

    Likewise, I would gladly pay for individual rugby matches or just a Heineken Cup package, but I don’t want to pay for a whole sport package. Jeremy Darroch today said that people subscribe to get all sport. That’s wrong in my case. I’m not interested in the whole sport bundle. But I would pay small amounts for F1 and Heineken Cup.

  2. Sky have told me that Anytime over any ISP is from Easter, so I’d expect the new OTT services to appear after that. Also I imagine the sports offering will wait for the new footie season. 

    Overall I think it’s the only thing Sky could do, I know loads of people that have suddenly got into iPlayer and are checking out Netflix. Lovefilm is suffering from poor quality video, so they need to up their game.

    It all hinges on whether Sky are going to charge an arm and a leg for access. I don’t think people will want to pay £20 for an entertainment package, when Netflix/Lovefilm is £6.