Company Trend Analysis - Sky Going Alone In Converged Market - NOV 2017


BMI View: Sky has launched a streaming service outside its core footprint in Europe , for the first time. Targeting Spain, following Netflix and HBO, is interesting, but we believe the structure of the market, moving towards a high level of convergence, will mean Sky will have a limited customer base to address.

Sky has launched a stand-alone streaming service in Spain, similar to the Now TV service it offers in other markets. Costing EUR10 (USD12) a month, the service includes 12 live channels and a catalogue of on-demand content. This is the first time Sky is launching a service in a market where it does not already have a presence as a satellite pay-TV provider. The company will face dual competition, firstly from other streaming providers, like Netflix and HBO, and secondly from the evolution of the market towards premium and converged services.

Sky enters a fairly crowded streaming market, dominated by Netflix and HBO. With its low price, it could attract a number of subscribers to its service, but it may have to consider offering exclusive content in order to become a must-have service. The company is focusing on TV series and cinema, but will lack the back catalogue that Netflix can offer, or the premium series, such as Game of Thrones, available on HBO. The company also does not own any sport content in the Spanish market, which would have been a key differentiator, though at a much higher price point for consumers. Finally, unlike some of its rivals, Sky does not have a relationship with operators where its service will be available through their set-top boxes, meaning it will have to rely on consumers directly purchasing the service, creating another hurdle.

Stand-Alone Declining
Broadband And Pay-TV Only Subscriptions (mn), 2010-2016
Source: CNMC

The evolving structure of the Spanish market will provide another hindrance to Sky's success. Since incumbent Telefonica launched its Fusion service in 2012, the main driver has been convergence. Deals between Vodafone and ONO, Orange and Jazztel , and MasMovil and Yoigo , more recently, have accelerated this trend, meaning that the four main nationwide operators are all converged players. While Sky can leverage the higher broadband speeds and the demand for fibre, which should boost the demand for streaming services, all operators are looking to keep their customers within their ecosystem, and this includes pay-TV. Quad-play has kept on growing, reaching 4.8mn subscribers by the end of 2016, whereas IPTV is by far the dominant pay-TV technology in the market, with 3.4mn subscribers out of a total of just over 6mn. Sky's addressable base is, therefore, fairly limited, as it looks to be attractive to a reduced number of broadband-only customers and potentially some cord-cutters, while trying to bypass traditional operators entirely. This means they will provide even greater competition to the service, and Sky will be stuck between them and other streaming providers, with little room to manoeuvre.