1 Mar 2018

Sky rejigs its offerings - but what next?

From Mediawatch, 10:29 am on 1 March 2018

Sky TV’s slashing of its prices was an inevitable response to cheaper digital entertainment options on the market. Can it keep and create customers in the online era when exclusive rights to the All Blacks on TV may no longer buy their loyalty?

About half of New Zealand households are Sky subscribers.

About half of New Zealand households are Sky subscribers. Photo: AFP

“Just returned my Sky equipment to a local contractor, who said: “you and everyone else”. There were decoders piled up out the back! Glad I don’t have shares,” journalist Tony Wall said on Twitter recently.

In a fragmenting media marketplace, Sky TV has been a one-stop-shop for sport, news and entertainment and many households have been happy to shell out for it over many years. Sky was still able to report a mighty customer base of 778,776 subscribers at the end of last year.

But the pay television operator lost 38,000 customers in the last half of 2017. It was just 6,000 customers down for the same period a year ago.

Disconnections - known as “churn” in the trade - is the great worry of any company depending on subscribers, and also functions as a key barometer of the appeal of its offering and its prospective profitability.  

Something had to be done.

“Our total subscriber count declined because we didn't attract enough customers who find the new on-demand models appealing," Sky’s long-serving chief executive John Fellet said bluntly in his report to investors.

Not only are the likes of Netflix - now estimated to have more than a million customer accounts in New Zealand - and the Spark-owned Lightbox offering comparable video-on-demand entertainment at a fraction of the cost, they are also driving up costs of popular content for Sky itself.

The other key measure preoccupying Sky's bean-counters and investors is ARPU - average revenue per user, which will fall after the price-cutting announced yesterday.   

In years gone by, Sky's 800,000-odd customers were paying just under $80 on average each month for Sky packages. The packages started at $49 a month with those wanting sport, movies and premium TV drama paying more than $100.

From this week, new and existing customers will be able to get 46 channels for $24.91 a month, instead of 64 channels currently offered for $49.91 on Sky’s ‘Basic’ service.

This may help Sky retain existing customers and attract some new ones, but Sky is still largely dependent on old-fashioned “linear” broadcasting - and the appeal of the All Blacks and Black Caps exclusively live on TV.

Sky has the rights to top rugby, league, netball and cricket locked up until at least 2020. It also has exclusive TV rights to shows from the likes of HBO, Disney and Viacom as well as Hollywood studio movies.

But a PWC report released last year, which looked at the future growth in media, said satellite TV subscriptions have peaked - largely because of the appeal of cheaper options like Netflix.

"Satellite TV will be strong through to 2020, but subscription models are all playing to what consumers want. They are more digitally-enabled and using a range of devices," PWC’s media specialist Keren Blakey told Mediawatch last year.

Sky TV's chief executive John Fellet talking to RNZ's Colin Peacock.

Sky TV's chief executive John Fellet talking to RNZ's Colin Peacock. Photo: RNZ / Francesca Emms

Sky TV’s chair John Fellett knows all this only too well - it's in his own home.  

In June 2016 John Fellett told Mediawatch the company's services were perfect for "the boomer generation" with big screens in the house. But even his own kids had little interest in it. Like other young people, they watch shows on-demand on portable devices, he said.

"We've got to find a way of turning them into customers," John Fellet said at the time.

But Sky’s own online offerings - such as Neon and Fan Pass - have proved half-hearted attempts to provide on-demand access to those not keen to buy a bigger package including sports. The on-demand platform for subscribers  SkyGo has frustrated many users.

Nearly two years later, simply cutting the cost of a smaller range of TV channels via satellite is unlikely to fire up a new generation of customers.

“Does New Zealand need a local pay-TV company any more?” Morning Report’s Susie Ferguson asked on Thursday.

Sky has recently been pushing the message that it’s a Kiwi company. It alone covers most significant local sports events, and it owns the free-to-air channel Prime.

“I’d much rather John Fellett was making programming decisions here in New Zealand than [US venture capitalist] Reid Hoffman sitting in California. He doesn’t care about the market here in New Zealand,” tech commentator Peter Griffin told Morning Report.   

But in all its years dominating pay-TV here, Sky has shown little interest in local programming beyond sports.

Its medium-term future remains in the hands of those who love sport-on-screen so much they’re also prepared to pay for channels they don't watch.