Market Insight

Sky continues to grow in challenging environment

January 29, 2016

Maria Rua Aguete Maria Rua Aguete Technology Fellow and Executive Director, Media, Service Providers, and Platforms

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Despite fierce competition, Sky added 205,000 new retail customers in the UK and Ireland during the last three months of 2015 – the highest quarter-on-quarter growth for the platform in the last ten years. In Germany and Austria, net additions totaled 120,000 and even in Italy, where Sky had been losing subscribers, 12,000 customers were added. Sky broadband subscribers in the UK and Ireland increased 144,000 in the quarter, reaching 5.89 million at the end of 2015.

Sky reported £5,718 million ($8.2 billion) total revenues for the six-month period ending 31 December 2015, representing a 5% increase. EBITDA increased 8%, taking earnings to just over a billion at £1,049 million, while operating profit increased 12% to £747 million. ARPU in the UK and Ireland remained at £47 ($67), whereas ARPU in Sky’s German and Austrian markets increased from €34 ($37) to €35 in the quarter. ARPU in Italy remained flat at €42.

Sky will launch its premium service Sky Q in February 2016. Basic packages for Sky Q will start from £42, representing a premium of £12 on current basic packages. Movies will command an incremental £17 on top of this, while sport will cost an additional £25.50. Sky will charge a one-time fee of £99 to enable all smart features alongside a £50 installation fee, which will be waived for new customers. The more advanced Sky Q Silver will see monthly subscription prices increased to £54 a month for a basic package, with the same installation and smart features fees applying. For further IHS analysis on the Sky Q ecosystem, see our analysis here.

In 2016 Sky will also release a new NowTV box, dubbed NowTV Smart Box. Previously, the NowTV box has heavily relied upon existing consumer Roku boxes which are then slightly modified for use with the NowTV interface. The latest NowTV iteration comes ahead of the release of the Roku 4, on which it is based. The refreshed hardware allows access to Freeview channels via a digital tuner, helping the NowTV box retain users within its environment.

Our analysis

This will be a year of innovation for Sky. Sky Q represents a leap forward in terms of viewing, freeing content from a single box, single screen relationship. The year will also see the launch of mobile services, completing Sky’s array of services, which will be launched before year-end.

The Sky Q ecosystem develops a complete viewing solution, both in and out of the home. As Sky’s OTT counterparts have repositioned to present viewing experiences which differentiate between demographics and user habits, so too has Sky taken advantage of in-depth data about their user base. Sky’s resulting product represents a challenge to its competitors, both in the pay TV space and in competing OTT top-up services. IHS believes the product will encourage the uptake of premium tier packages, as the all-encompassing solution adds value to a consumer’s purchase.

Covering the other end of the spectrum, NowTV is now positioned firmly as a ‘Pay Lite’ product. Previous versions have provided SD streaming even when the equivalent Roku box is fully capable of HD or higher. The addition of the terrestrial tuner means that users now have access to the spectrum of FTA channels, as well as short contract access to much of the premium content that Sky has to offer, including premium sports. This represents Sky continuing to take a more flexible approach in retailing its content. NowTV allows consumers more choice in which content they can access and pay for, in the form of day passes which allow premium content to be sold without undermining its inherent value.

International operations in Germany, Austria and Italy are starting to benefit from enhanced synergies passed down by the parent company. For instance, the Sky Plus set top box, which will see further development, is due to be rolled out in all territories alongside on-demand and OTT services such as Sky Go Extra and access to series box sets. Italy added customers for the first time in two consecutive quarters, with advertising revenues also increasing by 16%.

The cord-cutting phenomenon is widely seen as having a global impact and downgrading the sustainability of the pay TV business. However, most European markets are proving resilient to substitution effects from ‘Pay Lite’ services such as Netflix, and overall European appetite for subscription video services has grown 50% since 2010. Sky’s subscriber growth during the quarter is an example of growing interest in premium content.

Research by Market
Media & Advertising
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