BT Sport creates long-term “erosion” risks at Sky

BSkyB subscribers who are HDTV viewers and paying for a Sky+ set-top box are receiving documents and e-mails telling them that from now on they can watch 3D transmissions and have ‘free’ access to Sky’s Formula 1 coverage as part of their core subscription. The messages are part of BSkyB’s fight back over the threat from BT Sport offers which many analysts think will create problems for BSkyB.

Patrick Wellington, a media analyst at Morgan Stanley, suggests in a report to clients that the BT move of ‘free’ sport has “negative implications” for BSkyB, and it seems the market has heeded the bank’s report marking Sky shares down at the end of last week (Sky’s shares fell overall last week from £8.60 to £8.10, and way below their 12-month high in mid-March of £8.99).

Wellington asks the $64,000 question: “Will customers churn off Sky?” and answers that despite the hoopla and publicity, BT does not – in his view – have a compelling premium content offering. “Customers who take Sky for premium content (films, movies HBO) are not likely to shift because of the arrival of BT Sport. The YouView/ BT sports proposition remains distinctly less appealing to the Sky premium content.”

He continues: “[BT’s offering] may have greater relevance for the Sky basic customers (c4m) who take no sports and movies These customers do get a number of HD channels and Sky Atlantic and have high satisfaction scores reflecting access to a ‘free’ PVR , SkyGo, etc as well as access to cheap broadband (£7.50pm).”

The majority of Sky broadband customers are people who take the broadband as a cheap addition to the TV service – an incremental £7.50pm. Although the gap has narrowed the cheapest BT broadband offer in this price promotion will still be £10pm with line rental another £1pm more expensive. We do not see Sky TV/broadband customers switching on the back of this BT price promotion,” Wellington says. “Sky’s broadband-only customers will be more vulnerable. They pay £10pm plus £14.50pm for line rental – still £1pm cheaper than the BT broadband/line rental price, although without BT Sport. There are c424k such customers. Depending on how much they value BT Sports such customers may be tempted by the new BT offers. Sky has just acquired 500k O2 broadband customers, of whom perhaps a third (170k) take the Sky TV product. Parts of this group may be vulnerable to churn in favour of BT.”

The Morgan Stanley report says that Sky is unlikely to reduce its broadband pricing, and as a result may find it harder to recruit new broadband only customers. The bank also suggests that Sky will find it more difficult to raise prices.

And the report suggests there’s plenty of potential upside for BSkyB, not least the fact that it raised its prices to customers last September, the broadcaster has a potentially valuable new product in its ‘NOW TV’ offering which it can also wholesale to other OTT players.

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