Advanced Television

Analyst: NOW TV ‘calculated risk’

July 17, 2012

By Colin Mann

BSkyB’s launch of its pay-as-you-go Internet TV service Now TV is a “calculated risk”, according to Cesar Bachelet, Senior Analyst at Analysys Mason.

Bachelet suggests there is a risk that some standard satellite pay-TV subscribers who only signed up to the basic packages (which start from £21.50 per month) because they are a prerequisite to getting the premium Sky movies add-on package drop their standard subscription and take up Now TV instead, as they can now get the content they want more cheaply on its own.

He suggests a key point is that the risk already exists because of offerings of Netflix and LOVEFiLM, and that Sky is simply offering a package comparable to a premium LOVEFiLM offering, which means that any subs tempted to churn to one of these offerings now have a ‘spin down’ option of staying with Sky.

“However, we believe that this risk is outweighed by the fact that Now TV makes Sky Movies content available to the approximately 13 million households in the UK that do not currently take up pay-TV service. This is a big opportunity for Sky to extend its reach and monetise its content, targeting those who may be considering Netflix or LOVEFiLM,” says Bachelet.

He describes the service’s pricing as “a balancing act” in that Sky needs to attract non-pay-TV subscribers that the offer is targeted at, but should not risk cannibalising traditional pay-TV, e.g. standard subscribers abandoning premium packages and opting for Now TV instead.

Now TV offers same content as Sky Movies premium add-on package, but (at £15) is priced £1 less per month than the incremental cost of the Sky Movies premium package for a standard satellite pay-TV subscriber (£16 per month). Sky has also been targeting its standard subscribers with attractive offers prior to the launch of Now TV, e.g. half price Sky Movies for a year.

Similarly, Ted Hall, Senior Analyst at Informa Telecoms and Media, says that the launch is not without risk. “As a product for the post-10-million-subscribers era, it is a different kind of pay-TV proposition, one that removes the barrier of a long-term commitment in order to attract a new audience. The allure of such freedom could be stronger than Sky intends, with cost-conscious satellite customers now presented with a more flexible alternative – still accessible on the living room TV set – which they can switch to without having to desert their long-trusted pay-TV provider,” he says.

“NOW TV also represents a potentially dangerous move away from the bundled approach to selling pay TV – the packaging of popular channels with those that are less desirable – towards an a-la-carte model. With Sky Movies – and later Sky Sports – now available without a basic-tier subscription, as well as on a pay-as-you-go basis, consumers are finally being introduced to the cherry-picking model they always wanted, the model operators have typically resisted for fear of disrupting the established economics of pay-TV. This could lead many to question why they need a traditional subscription when the option to pay for only the content they actually want is available as an OTT alternative,” he warns.

“While Sky has wisely resisted any temptation to compete with Netflix and LOVEFiLM on price – a move that would have significantly undervalued its premium first-window content – what started out as a defensive move against the new OTT players in town could backfire if cannibalisation of its core business takes hold,” he suggests.

Hall says the key will be to keep NOW TV on a leash. “If Sky allows it to become too good, too much like its full subscription service, the operator will stand to lose a sizable number of DTH customers willing to make the OTT switch – too much overlap between the two platforms will start to take the sheen off the appeal of the main Sky TV proposition.”

He notes that in launching NOW TV, Sky also finds itself in a curious relationship with YouView, choosing to distribute its content via the platform it staunchly opposed prior to accepting its eventual arrival. “With both players now targeting the same free-to-air audience, and via the same device, Sky will be doing so with more of a sense of trepidation, as success for NOW TV via YouView could have major implications for the way the operator delivers and packages its premium content in the years to come,” he concludes.

For Olivier Wolf, Partner at Greenwich Consulting, what was most interesting was not the announcement of the service and pricing so much as it is where Sky will go with this platform over the coming months. “Offering both a subscription and pay-per-view model does differentiate it somewhat, but perhaps not enough to topple Netflix and LOVEFiLM in the short-term. However, once Sky adds sports and other programming into the mix, then it becomes a very unique proposition in the OTT space. At the moment the price-point is high compared with Netflix and it is only going to justify £15 a month if it can offer something others cannot, and that is programming unique to Sky’s channels,” he suggests.

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