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Report: Sky Q strategy “makes sense”

As reported last week, Sky UK is now issuing new subscribers its top-of-the-line Sky Q set-top box.

A study from equity analysts at Deutsche Bank suggests that the extra manufacturing costs of a Sky Q box are just £25 (€27.64). The ‘old’ Sky+HD box cost £75. Sky is still charging £10-£15 per installation depending on the package taken by viewers.

The bank’s report says the new Sky Q strategy is being introduced as a deliberate attempt to cut churn (with Sky owning the box it can take the device away if the subscription is halted). “The policy looks to be building major churn benefits and pricing power/upsell potential at reasonable cost, so a move that should, on balance, be welcomed,” says Deutsche Bank.

But it is not without issues, states the report. “The change in policy was unexpected and there the ARPU/revenue benefits are hard to quantify in the absence of any quantification on Sky Q sub additions/spending levels. The ownership of the box and costs of install/repair also open up a risk of potential further cost. These risks could be areas where Sky could offer comfort at its [Capital Market Day, on October 20th].”

“Sky had previously flagged that part of the Sky Q offer would be that it would take responsibility for fixing any box/hardware costs and own the hardware, rather than the current £50 engineer visit fee and customer-ownership model. So this was not new.”

“The policy makes sense from a practical perspective. The Sky Q offer is aimed at upselling customers to taking more hardware in the home (Sky Q Silver with the mini wireless boxes boosting wireless coverage around the home) and higher programming tiers (the majority of UHD content will be for movies and sports, Sky Q multiscreen). So taking ownership of the hardware removes the risk of repair from the consumer and allows Sky to claim back from churning subscribers.”

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