Complacency abounds as Euro operators see little change ahead

The first panel debate at this Connected TV World Summit in London this week asked a combination of operators and their tech vendors whether or not the virtual pay TV operator would lead to a brave new world.

It was a bit like asking Turkeys to vote for Thanksgiving, and to keep with the “bird” analogy, the Ostriches promptly buried their heads in the sand and shrugged. Virtual TV operators would make no difference they all concluded. What’s next?

One of the key points made was that the US and Europe are very different. Sky, in the shape of Nick Herm, strategy Director, talked us through the charms of the Sky Q box, which we are all too familiar with, and told us that 2 million of them have already shipped. Herm took the view that in the US skinny bundles were all the rage, but they would not take off here.

“Those skinny bundles cost around $40 each,” he said, “but in Europe operators have to contend with free to air services, often subsidized by governments with tax payers money. Sky has had a £19 bundle for a long time to compete with that and it’s better than one of these $40 skinny bundles.” We later reminded him that a number of them were $20, but he could not agree.

The rest of the panels heartily with Herm, but they should all take a longer look at US cable firms, who actually offer a triple play for around $30, with an equivalent bundle to the skinny ones. It has been this way since 2009 when cable began offering a replacement service for that precise same free to air broadcast TV, because of analog switch off – they wanted to make cable look like a serious option.

But US consumers are not taking up those skinny cable collections of channels, they are taking up the skinny OTT bundles. Why is that? Could it be that they are higher quality? Better delivered, better value?

In a way this brings us back to Herm’s presentation just prior to the debate – an MSO is now simply a way of merging all those skinny bundles into one interface and a single marketing proposition – and he wanted to talk about Sky Q, with its voice control, brilliant WiFi, fresh UI and how it had driven a higher NPS (Net Promoter Scores) from Sky customers. It certainly is an attractive lens through which to view a not so skinny bundle of TV channels.

The speaker from Orange, Philippe Steinmetz, marketing director for TV and SVoD agreed. “There is even more free TV in France, and we have had Netflix for 3 and a half years. And we have seen no cannibalization. It used to be that remote controls would click onto channel after channel, and every channel would get some air time, but there is no clicker in an on demand world.”

A question from the audience established that “Discoverability comes because of the voice search,” both nodded sagely. “because you cannot click a service that doesn’t have channels.”

In chipped Jette Nygaard-Andersen, EVP for Modern Times Group, “In Scandinavia we no longer have any free TV,” because even the free TV has to be paid something. Collectively they concluded that Netflix couldn’t have originated here, “Compared to the US TV, Netflix looks good, but it looks less good when compared to our services.” A colleague from the audience reminded him that US TV supported 20 minutes of adverts per hour, whereas in the UK it was 12.

To remind them – Netflix has swept through the UK, Scandinavia and France and has not yet stopped and today it has close to 7 million customers in, picked up in 5 years, against Sky’s just under 12 million that it took 27 years to establish. Sky and Orange now both partner with it and treat it like another channel – threat over.

The truth is that Sky, Orange and MTG have all responded well, and in Sky’s case, very early, to combat the rise of the virtual pay TV operator. In each case they failed to kill Netflix, so instead embraced it and they will also fail to kill others as they arise. Sky created Now TV and put it up fairly and squarely against Netflix – and it completely failed to slow it down. What it did, however was show Sky that using IP was a good delivery method, cheap to set up and experiment in other countries, without having to sign up to a satellite delivery DTH contract.

Orange too had 63 TV channels on its phones, even before they were smart, and bought into DTT services, acquired sports rights, and has since mastered a full multiscreen strategy and its’ own search and discovery platform. “We have some very aggressive virtual players in France” said Steinmetz, and just as we expected him to mention the home grown Videofutur, he instead raised Motolov. We didn’t see if he flicked a resentful eye at Sky which in 2016 invested €4m into Molotov, but he assured us that it had no effect on the growth of Orange in the TV arena where it is now number 1 in France.

MTG pushed out Viaplay as one of the first responses to IP in Europe, almost as early as Sky’s first TV Everywhere service. They are in good shape because they saw Netflix coming and compared themselves against it, found themselves wanting and innovated – with online OTT, with Voice control, with recommendation software and enhanced discoverability and with Sky Q, and what Sky has got out of it is considerable.

Sky has launched in Switzerland and in Spain, over IP, without the need for an expensive set top, nor a satellite link – we asked Herm what it was – a new business model or an experiment – “An experiment, which is pretty easy to set up,” he confirmed.

We thought we witnessed a lot of complacency present in the room. Herm is right that OTT is just another delivery platform, and the real issue is the high price of gaining access to sufficient content to launch a hybrid IP based virtual platform. But there are many large multinational businesses outside media which may yet get involved in OTT TV – Vivendi was once a water company after all and some of these industrials have deep-pockets.

And there are some rivals (like Vivendi) who may borrow from Sky’s example and use the cheap cost of IP set up to build their own virtual TV service in Sky’s backyard – instead of Sky only having to deal with cash strapped start-ups. There was BT after all, pretty virtual really.

But deeper than this, there are structural ramifications from the US craze for skinny bundles. They will change how US content companies organize their offerings, and one of two of them will get it right. Then some companies who used to go to market overseas through pay TV companies, will want to go direct to the consumer – not just in the US, but worldwide, following the example of Netflix.

Disney may be one such player, and if it does not, after all, end up owning Sky, then it will be deeply competitive with Sky and Orange and MTG, and it will want access to all of their markets.

The days of allowing exclusive access to movies to one channel per country, may also be over and perhaps not enough for HBO for much longer, especially once it is owned by AT&T, which has followed with DirecTV, Sky’s adventure from DTH to IP and is ready to globalize and challenge.

Well it won’t matter to Sky, after all, by then it will be a subsidiary of Comcast NBC and it will have access to HBO content over AT&T’s dead body.