Market Insight

Sky and BT agree channel sharing deal for 2019

December 15, 2017

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UK pay TV market leader Sky and incumbent telco BT have agreed to distribute each other’s channels on their respective platforms from early 2019. The agreement will see BT wholesale its BT Sports channels on Sky TV, while BT customers will be able to purchase and access Sky’s OTT service, NOW TV, via BT’s YouView set-top box. 

The move will allow both pay TV operators to increase the reach of their channels and their acquired content and sports rights. Sky’s TV customers will be able to watch all matches from the Premier League, UEFA Champions League and Europa League on the same subscription. BT Sport will also be available on Sky Go for Sky TV customers and on NOW TV boxes. 

Sky customers will also gain access to BT Sport 4K UHD on the Sky TV platform as part of their existing subscription. Currently, Sky TV customers can only watch BT sports via the set-top box when they are activated and managed by BT, including billing.  BT’s 1.7m IPTV customers will be able access a range of Sky’s channels including Sky Atlantic, Sky Living and Sky Cinema. This will be the first time Sky’s entertainment channels will be available via all of the key pay TV platforms in the UK. NOW TV will be accessible via all of BT’s platforms and devices operated under the BT, EE and PlusNet brands; including the YouView set top box and the BT App.

Both distribution agreements include an integrated billing system for the customer as well as a seamless viewing experience.  

Our analysis

The agreement between Sky and BT to allow cross distribution of their channels reflects Sky’s ongoing strategy to increase its reach among both pay TV and free TV households and also to generate new revenue streams by leveraging its premium content. IHS Markit estimates Sky to have 9.6m DTH households and a further 1.4m on NOW TV in the UK.

While the satellite operator has steered away from adding OTT subscription services such as Netflix on its set-top box, this will be also the first instance of an all-encompassing partnership between its own OTT service and a pay TV platform. Although Sky Cinema and Sky Sports are already available on competing pay TV platforms, BT will be the only pay TV provider, other than Sky, to allow access to Sky Atlantic content which include HBO and Showtime content in addition to its premium original content. Sky had previously expressed interest in a wholesale deal with BT, whereas BT wanted to maintain a direct customer relationship with its customers. This partnership allows Sky content to be accessible to BT customers while BT continues to maintain a direct customer relationship in terms of the user experience and accounts.

For the time being, both Sky Cinema (£13.50 per month) and Sky Sports (starting from £27.50) bundles remain on the BT TV platform as add-ons. Although the Sky Sports monthly pass offered via NOW TV is priced at £33.99 due to wholesale regulations, the Sky Cinema pass stands at a substantially lower £9.99 a month, thus reducing Sky’s margin. The NOW TV Entertainment Pass also poses a threat to BT’s existing channel packages. With the launch expected in early 2019, it can be assumed that BT will be reviewing its pricing and packaging structures.

For the country’s second largest TV provider, Virgin Media, the deal weakens its market position slightly. The operator had previously been in a privileged position: sat between two major players at war and able to provide its customers with access to both their sets of channels – although not coveted content from Sky Atlantic. For BT, Virgin Media is the only player apart from Sky with significant reach (close to 4 million subscribers). Already carrying the popular Sky Sports channels meant that carriage deals for BT Sport were likely very favourable for the cable company. With Sky having a much wider reach than Virgin Media, much of this leverage now will have disappeared and it is likely that future arrangements with BT will produce more modest margins, and deals with Sky will be more in line with regulated wholesale agreements.

The move comes as the fight for premium sports is likely to intensify; rumours indicate that tech giants Amazon and Facebook may be in the running to bid for rights. While Facebook lacks the ability to fully monetise premium rights, the company has deep pockets and a willingness to speculate in order to future-proof its consumer ecosystem – although a more efficient, homogenous, and less expensive option would be international rights, excluding the UK. Amazon has steadily been constructing a more traditional pay TV package structure online, which is becoming capable of classic premium upsell, additionally in the UK, the online giant now has roughly double the subscribers to its video service than BT. Domestic rights for the Premier League are due for auction in February 2018. Both Sky and BT currently hold Premier League distribution rights for 126 and 42 matches respectively which end at 2019. Allowing Sky TV and BT TV customers to view all matches via one platform protects both players if they were to lose coverage to new entrants.

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