Back in February of this year, UK broadcaster BSkyB unveiled a major new online TV service which it would be making available to non-Sky customers. Initially the company had introduced an internet provided premium content service in 2006 called S

ky Broadband, which evolved into SkyPlayer and then SkyGo. This evolutionary service was initially offered as a bonus service for Sky’s existing pay TV customers, to allow them to access their premium content on a PC, Xbox and later a FetchTV hybrid SmartBox.

This new move towards a service aimed at non-Sky customers is largely seen as Sky’s attempt to fight off the new disruptive services such as Netflix and the don’t-hold-your-breath-but-we’ll-be-here-soon YouView. This poses an obvious question as to why Sky would introduce a service which cannibalises existing Sky TV customers at a time when they know that customers are cord cutting to save money.

A recent Bank of America/Merrill Lynch (BoAML) report marked BSkyB to “underperform” after their share prices dropped from 680p to 647p in five days. With the same BoAML report trimming long term earnings for BSkyB by a whopping 20%, it looks like those share prices might continue to fall. In the same breath, BoAML noted that subscription video on demand services like Netflix and LOVEFiLM have considerably lower barriers to entry as far as content supply is concerned. They provide users with a better experience, and with talk of a second recession in the UK, these S-VOD services are a cheaper way for consumers to enjoy premium content of their choosing. In light of this report, it could be said that Sky’s new service is being introduced to ensure that if anyone is going to cannibalise Sky TV customers, it will be Sky themselves.

Although a move into the OTT space could be seen as a way of avoiding the costly set up service of their tradition pay TV offering – satellites and set top boxes are provided to Sky customers free of charge when they subscribe to Sky’s pay TV service – this is unlikely to be the case. A 2011 Ofcom report revealed that of the 50.4% of UK free TV households, a large number are now using web based PAYG systems to supplement their TV viewing, and therefore the number of households paying to receive TV from companies such as Sky, Virgin, BT Vision etc are simply not increasing. Of course what this move will achieve, is access to the 13 million households in the UK who currently don’t subscribe to pay TV.

Consumers increasingly own more than one connected device and expect to be able to watch their preferred content at a time which suits them. Rather than expensive pay TV subscriptions, consumers want content from those who allow them to watch TV of their choice when they want, either for free (eg BBC iPlayer in the UK or Hulu in the US), or on a PAYG model (think LOVEFiLM or Netflix). The new challenge is to provide a consistent level of quality of service on multiple devices, across different platforms.

The introduction of BSkyB’s new service (which has yet to be named) is encouraging to other organisations operating in the OTT space. Until now, Sky’s vertical integration of services has proven a successful model for the company who now sit at the centre of 54% of the UK’s living rooms. However, despite exclusivity deals with major movie studios and purchasing power to provide access to the main sporting events, Sky is reacting to the recent shift away from TV delivered over managed networks. True, Chief Executive Jeremy Darroch denied that Sky was feeling competition from the arrival of Netflix, and was in fact quoted as saying: “I don’t see it [Netflix] threatening our business at all. It’s further evidence that this is an exciting market and lots of people see opportunities in it”. However the proof, as they say, is in the pudding, and the provision of this new service is telling in that Sky may be finally admitting that the game is changing.

Format

Back in February of this year, UK broadcaster BSkyB unveiled a major new online TV service which it would be making available to non-Sky customers. Initially the company had introduced an internet provided premium content service in 2006 called Sky Broadband, which evolved into SkyPlayer and then SkyGo. This evolutionary service was initially offered as a bonus service for Sky’s existing pay TV customers, to allow them to access their premium content on a PC, Xbox and later a FetchTV hybrid SmartBox.
This new move towards a service aimed at non-Sky customers is largely seen as Sky’s attempt to fight off the new disruptive services such as Netflix and the don’t-hold-your-breath-but-we’ll-be-here-soon YouView. This poses an obvious question as to why Sky would introduce a service which cannibalises existing Sky TV customers at a time when they know that customers are cord cutting to save money.
A recent Bank of America/Merrill Lynch (BoAML) report marked BSkyB to “underperform” after their share prices dropped from 680p to 647p in five days. With the same BoAML report trimming long term earnings for BSkyB by a whopping 20%, it looks like those share prices might continue to fall. In the same breath, BoAML noted that subscription video on demand services like Netflix and LOVEFiLM have considerably lower barriers to entry as far as content supply is concerned. They provide users with a better experience, and with talk of a second recession in the UK, these S-VOD services are a cheaper way for consumers to enjoy premium content of their choosing. In light of this report, it could be said that Sky’s new service is being introduced to ensure that if anyone is going to cannibalise Sky TV customers, it will be Sky themselves.

Although a move into the OTT space could be seen as a way of avoiding the costly set up service of their tradition pay TV offering – satellites and set top boxes are provided to Sky customers free of charge when they subscribe to Sky’s pay TV service – this is unlikely to be the case. A 2011 Ofcom report revealed that of the 50.4% of UK free TV households, a large number are now using web based PAYG systems to supplement their TV viewing, and therefore the number of households paying to receive TV from companies such as Sky, Virgin, BT Vision etc are simply not increasing. Of course what this move will achieve, is access to the 13 million households in the UK who currently don’t subscribe to pay TV.
Consumers increasingly own more than one connected device and expect to be able to watch their preferred content at a time which suits them. Rather than expensive pay TV subscriptions, consumers want content from those who allow them to watch TV of their choice when they want, either for free (eg BBC iPlayer in the UK or Hulu in the US), or on a PAYG model (think LOVEFiLM or Netflix). The new challenge is to provide a consistent level of quality of service on multiple devices, across different platforms.
The introduction of BSkyB’s new service (which has yet to be named) is encouraging to other organisations operating in the OTT space. Until now, Sky’s vertical integration of services has proven a successful model for the company who now sit at the centre of 54% of the UK’s living rooms. However, despite exclusivity deals with major movie studios and purchasing power to provide access to the main sporting events, Sky is reacting to the recent shift away from TV delivered over managed networks. True, Chief Executive Jeremy Darroch denied that Sky was feeling competition from the arrival of Netflix, and was in fact quoted as saying: “I don’t see it [Netflix] threatening our business at all. It’s further evidence that this is an exciting market and lots of people see opportunities in it”. However the proof, as they say, is in the pudding, and the provision of this new service is telling in that Sky may be finally admitting that the game is changing.
Path: