Sky v Discovery: Russian Roulette
January 27, 2017
It’s like the 70s all over again, suddenly the world is all about brinkmanship. President Trump seems keen to confront all except President Putin, his only serious rival for biggest ego on the planet. But they’ll fall out and the planets will collide; hopefully in a hissy twitter spat rather than a shooting war.
Talking of fall-outs and hissy fits brings us to Sky UK versus Discovery. Sky is in the midst of being bought by 21st Century Fox; now, fortunately for them, this particular suitor isn’t only driven by the numbers – which were lacklustre with a 9 per cent fall in operating profits – but also has an ego in play. It will press on.
Perhaps to distract from those numbers, perhaps to prove it still has some of its street fighting DNA of old, Sky publicly picked a fight with Discovery over carriage fees. Sky says it has been over paying Discovery for years for a bunch of not much watched channels. Discovery says its fees have dropped in real terms as Sky’s audience has grown and it has invested more in original content.
No one is naming actual numbers in terms of £ per home, but it is reasonable to assume we are not talking anywhere near the same ball park, or league, as football. But the price of Sky’s football has put real pressure on its business and cuts elsewhere, real and symbolic, must come.
So, is Sky – with its dominant position – just bullying Discovery in order save an amount that won’t make much of a dent in its costs? Yes, but it does also have a point; its hard-won audience isn’t there to prop up bunches of channels that haven’t cut through to a big audience and don’t make the kind of shows viewers make an appointment for, either in real time or on VoD. Beyond the prestige brand of the main Discovery Channel (and prestige does not, anyway, presage audience pull) the portfolio is a montage of cheap and variably cheerful realty TV and warmed-over archive cut and shuts – usually featuring Herr Hitler.
Or, at least, that was true. But Discovery has recently discovered its mojo as a serious international player and has been throwing money around in a way that makes it obvious that carriage fees in the UK are not at the epicentre of its world. If Sky can’t afford Discovery because of its sport, Discovery might just afford to live without Sky because of its sport.
It is the now the owner of Eurosport and it, in turn, has direct links to the new owners of F1, it has bought the rights to the Olympics and now has a clean sweep of tennis majors – Sky having dropped its interest. All this at a time when the UK – for the first time – has the #1 tennis player in the world. Discovery, and particularly Eurosport, are as capable as anyone else of functioning via an app on connected TVs and devices and, of course, they could also do deals with the likes of Netflix or Prime or ITV, (where common part owner Liberty has a stake), to sit on one of their platforms, or it could do a deal with all of them. It could do that and then spend all the money it saves on paying Sky to market the fact it’s done it.
If I was Discovery I’d stick it out for a better deal. If I didn’t get it, I’d take Eurosport and market it as standalone franchise available across the connected world. The rest of the package might be a low pay optional add on or, frankly, I might bin it. Sky says it would invest the money it saved on more original programing. Really? I think I’d rather have a cheaper subscription – Sky’s own record on home grown content is better than Discovery’s, but, as it might say, that isn’t saying much.
Sky has bet one-way on English football as its passport to continued high pricing in pay-TV. It has been driven by competition to over-weight that bet and now it’s getting nervous. Perhaps it should follow the regulatory admonishment on the betting ads that smother all its channels like Japanese knotweed: “When the fun stops, stop!” Not everyone has Sky for the football and, if it isn’t also providing a mug’s eyeful of content for the price (of which Discovery is at least the second-best part), then it is betting it can produce big, not to be missed at any price, content – and that’s what I call a long shot.
Sky will sabre rattle and then it will settle. To maintain high profits, the bottom line is that it needs to pay less for its foundation content of football. That’s difficult with big pocket competitors around – but another good reason to stay in a holding pattern for now is that the main other bidder, BT, has looked this week like it’s playing Russian roulette with itself but with no blanks in the chamber.
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