Industry Trend Analysis - Streaming Key To Sky Expansion - APR 2018

BMI View: Content partnerships will be essential if Sky and Netflix are to deepen their penetration of more mature pay-TV markets, where cable is difficult to displace yet streaming is yet to gain traction. Meanwhile, the launch of Sky Show in Switzerland is an important first step in the satellite operator's effort to move outside its core market where it aims to be the disruptive OTT player.

In agreeing to bundle the full Netflix streaming video service into a new subscription package for its European markets, Sky is recognising that the challenge in protecting its share of the pay-TV market cannot be won by relying entirely on its own content catalogue. In doing so, it is following its peers in the cable TV segment in deciding that continued improvements in TV household penetration will come not by screening out its streaming rivals but through working with them to provide a fully comprehensive TV package.

Netflix content will be delivered through the Sky Q platform, initially in the UK and Ireland, but subsequently in Germany, Austria and Italy, where Sky's direct to home (DTH) platforms are operated. Netflix is already well established in the UK and Germany and is growing rapidly in Austria. In Italy, take-up is hampered by the lack of cable networks and the limitations of wireline broadband networks. Sky, too, struggles to compete with well-established local media players for audience shares, so the pairing should bolster both players' chances of growing their customer bases which, for Sky, at least, will help it win new business from advertisers.

TV Not Yet A Compelling Multi-Play Product
Swiss Multi-Play Bundles By Type, 2015
Source: BAKOM

Separately - at least, for now - Sky is set to launch a new streaming video service in Switzerland. Dubbed Sky Show, the over-the-top (OTT) service will focus on films and TV series and will supplement the Sky Sport offering it launched in the country in August 2017. Sky Show will be available through iOS and Android-powered tablets and smartphones, as well as through Internet browsers, and will be available on Smart TVs and TV boxes in the near future.

Priced at CHF14.90 per month (EUR12.90, USD15.90), Sky Show will be marketed as an affordable 'no frills' service that offers access to much of the satellite operator's own content as well as in-demand content licensed from partners such as HBO, AMC and Showtime. Overall, we believe this is a positive move for Sky, which needs to expand into new markets as revenues from its core markets declines as a result of increased competition. The operator has enjoyed considerable success with its low-cost, stripped-down, contract-free NOW TV service in the UK, with little impact on its premium DTH service, so should be able to secure a modest portion of new markets elsewhere in Europe.

Switzerland is an obvious choice for Sky to begin its expansion, as Sky Deutschland already generates a considerable volume of German-language content for both its German and Austrian DTH markets. It will, therefore, not be an unfamiliar brand for many Swiss consumers. The main challenge is that the Swiss pay-TV market is heavily skewed towards traditional cable access and alternatives such as IPTV and streaming are yet to make an impact. However, regulatory data show that consumers have a healthy appetite for multi-play packages, even if TV does not always figure prominently in the most popular packages. Sky Show is unlikely to change that trend significantly, but it is an important first step towards doing so.

Variations of Sky Show and NOW TV are planned to be rolled out to other European markets where Sky does not have a DTH presence. Low-cost access to popular series such as Game of Thrones could lead to some disruption and this would be bolstered if the Sky and Netflix platforms could also be bundled in these markets. With Sky the subject of takeover bids from 21st Century Fox and Comcast, the company's value as a re-energised European player is on the rise and its foray into streaming TV is most timely.