UK operator Sky has historically been ahead of the curve when it comes to embracing online video, and it has taken this to the next level this week with the announcement that it will be offering all 270 of its TV channels over broadband in its next generation Sky Q box – doing away with satellite dishes altogether by 2018.
Over in the US, AT&T’s DirecTV Now launch has dominated the headlines over the past few months, but Sky in Europe is a comparable size to AT&T (in video) in the US, and is going further than the US operator has so far dared. Even with the launch of its new streaming service, DirecTV still wants to hold on tightly to its satellite subscriber base, while Sky has bitten the bullet to cannibalize its core business of 30 years. The reason of course is that it has found a way to do so, but slashing costs and keeping about the same amount of profit and performance in the broadband service.
Many multi-dwelling units (MDUs) across Europe do not permit residents to fix bulky satellite dishes to the outside of buildings, so by launching its entire channel portfolio over IP, opens Sky up to 6 million additional European homes, including 2 million in the UK. On top of this are consumers who are allowed to install satellite dishes, but who refuse to do so, and MDUs are typically in urban areas with access to fast broadband speeds – presenting an enticing product for MDU residents.
Sky has sold some 1.2 million Sky Q boxes into 600,000 homes since February 2016, and the satellite cull of the next version will commence sometime in the next financial year, but with no ball park date for the full IP-delivered offering released yet. It is expected to require a minimum connection speed of 4Mbps.
The existing Sky Q box is a hybrid service so already partly uses broadband for delivering on-demand and catch-up features, and Sky has clearly decided to build on the success of its full OTT service Now TV – substantially reducing its satellite costs to set the company up for some potentially impressive financial results in the coming years.
The new version of Sky Q will therefore rely more heavily on WiFi, something we have to tip our hat to Turkish WiFi specialist AirTies for – a company which has essentially helped transform Sky’s business by making video over WiFi a safe bet. AirTies’ mesh networking technology was the last ingredient for sweeping the home with WiFi, and in 2018 all 270 Sky channels will reach every corner of the consumer home thanks to the AirTies secret sauce – a condiment that solves the bad apple/sticky client problem which previously hindered the performance of video streaming. The Sky Q box itself was built by the in-house set top operation which was once Amstrad, and we presume there will eventually be a graduated offering with Roku boxes used for Now TV, at one end, and the Amstrad built Sky Q class boxes at the top end. And all IP will mean that services like DRM or conditional access will change dramatically, with two way frequent authentication available to the box, which will almost certainly mean a change of CAS supplier.
But if Sky is going to shift to all broadband TV, then this will have a huge knock-on effect for advertising. So Sky simultaneously announced that it is rolling out its homegrown AdSmart technology in Italy and Ireland this year, and will be followed by the inclusion of the advanced advertising system on Now TV in the UK. The objective of AdSmart, which launched in 2014, is to attract smaller regional advertisers to target audiences on the basis of demographic or locality.
The platform has been criticized for being too expensive, since targeted campaigns often cost more than national spot ads which are shown to everyone. But most of the 40 brands that initially joined as launch partners are still customers, with 25% of them being either new to TV advertising or returning after a long absence, according to Sky.
AdSmart comes at an eight times price premium and two years on, AdSmart revenues have more than doubled, running 6,745 campaigns from 1,020 advertisers – 74% of which are new to TV.
This year holds some truly exciting prospects for Sky, not to mention having only recently launched its MVNO venture in the UK at the tail end of last year. Sky Mobile will be hoping that momentum picks up after a somewhat anticlimactic launch.
Sky CEO Jeremy Darroch said: “This is the first time we have been able to offer the full Sky TV service without a satellite dish. It is a big moment for the business. Launching in our next financial year and initially in the UK, this new broadband-based service will open up new headroom for growth. Over time, we will launch this service in our other markets, building on our position as Europe’s leading OTT provider.”
The bold announcements made by Sky completely overshadowed its coinciding financial results, which reported some good looking numbers for the six months ended December 31 2016. Group revenue was up 12% to £6.41 billion ($8 billion), with Germany and Austria performing strongest with a 31% reported growth, or 10% growth at constant currency (Sky reports in British pounds but half of its business in Euros).
Germany and Austria was also the region with the most new retail subscriber additions, adding 231,000 to bring the region to a total of 4.86 million. Subscribers in the UK and Ireland increased by 205,000 to reach 12.65 million, and Italy now totals 4.8 million after picking up 67,000.
Sky saw an 18% fall in profit to £679 million ($854 million) during the period – primarily due to increasing costs for English Premier League (EPL) soccer rights which amounted to an additional £314 million ($395 million).
Further news from Sky include plans to introduce enhanced voice search features, and better content personalization in 2017, likely spearheaded by long-term Sky partner ThinkAnalytics, as well as the discovery patents it licenses from Rovi. The My Sky app is also due an upgrade this year, bundling it with a new loyalty program allowing subscribers to better manage subscriptions.
Darroch said, “We remain confident in our strategic plans and have made significant progress against them. We’ve launched Sky Mobile in the UK, delivered further enhancements to the customer experience across the group and extended our reach in Europe’s largest TV market with the launch of Sky Sports News free-to-air and Sky 1 in Germany and Austria. Whilst churn in the UK has remained higher than planned, we have a full set of actions to this, including replicating the success of our Italian loyalty program which has resulted in reduced
churn.”