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Analyst: Sky/Discovery dispute sign of market trends

According to John Bird, Principal Consultant at Futuresource Consulting, the impact of on-demand on linear viewing and the rising cost of sports rights are two of the main reasons behind the well-publicised and highly acrimonious pricing row between Sky and Discovery Communications which was settled shortly before the broadcaster’s 12 thematic genre channels were set to disappear from Sky’s pay-TV and NOW TV OTT platforms.

Writing in the company Media and Entertainment blog, bird said the disagreement was simple – Sky said Discovery’s viewing on its platforms has fallen and it did not want to pay what was being asked to renew their long term carriage agreement. Discovery said it is being paid less than it was 10 years ago, despite Sky subscription price rises and a claimed 20 per cent increase in viewing of its channels on Sky platforms (the acquisition of Sky Germany and Italy in this period may well be a factor behind this assertion).

Impact of On-Demand on Linear Viewing

According to Bird, comparing BARB data for the last seven months of 2016 with the same period for 2014 suggests that the share of Discovery’s channel bouquet (excluding Eurosport) has indeed declined. The data also indicates that Sky’s own average channel share over the same periods has been relatively constant.

In Futuresource’s view, this will almost certainly be in a large part as a result of the impact of on-demand viewing on traditional linear multichannel TV. According to the latest survey in the Futuresource international consumer research programme Living With Digital, 12 per cent of UK respondents now say that SVoD services are their most frequently viewed video platform, up from 6 per cent a year earlier, compared to 15 per cent for pay-TV channels. There are now approaching 6 million Netflix and 4 million Amazon Prime Video users in the UK (many taking both). As total TV viewing hours are relatively flat, it is inevitable that viewing of these services (as well as other alternative platforms like YouTube) will be taking share from traditional linear TV channels, says Bird.

To combat the SVoD challenge, Futuresource notes that Sky itself has been migrating its proposition from linear to on-demand with Sky Q, Sky+, Boxed Sets, Sky Store, Sky Go and Sky Now. Viewing of Sky Atlantic (which carries HBO content) is 75 per cent on-demand. From 2018 Sky will offer its full content portfolio on its online TV platform Sky Now, which offers both Subscription and PPV/Pass options.

Rising Cost of Sports Rights

Live sports have become a critical weapon in the battle to sustain pay-TV as Broadband has taken centre-stage in the battle for multi-service subscribers. Sky had to bear a 70 per cent rise in the price of Premier League rights in the last round as a result of competition from BT Sports and is paying £4.2 billion for five of the seven packages which run for three years from 2016. Sky’s profitability dipped 9 per cent in the last half-year and will be looking to keep its results up, especially as it has accepted a takeover bid by 21st Century Fox which values the company at £18.5 billion. Hence an understandable reluctance to pay more for channels which it claims are being viewed less, suggests Bird.

Discovery, whose largest shareholder is John Malone (Liberty), acquired the 49 per cent of Eurosport it did not already own from TF1 in July 2015 for €491 million. It too has ramped up sports spending with exclusive rights to the Australian Open tennis and €1.3 billion for Olympics rights for 2016-2024.  Over 40 per cent of Discovery’s overall revenue comes from advertising but it will also look to maximise subscription-based income and has been pushing its standalone online Eurosport Player. Although distribution deals with BT and Virgin Media (owned by Liberty Global) remained in place, a blank screen on 10 million+ Sky boxes from 1st February would have left a big hole and it was clearly in the interests of both companies to reach agreement, concludes Bird.

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