It has certainly been a busy week for Sky. Hot on the heels of the proposed $22 billion bid from Comcast, Sky has announced its plan to offer Netflix as part of its subscription packages in its European markets.
The integration will first occur in the UK later in 2018, with Germany and Italy to follow. Sky’s Pay-TV footprint in these three markets (excl. Now TV) hit 19 million Pay-TV at the end of 2017, compared with 12 million for Netflix.
Many other Pay-TV operators in Europe and beyond have partnered with Netflix (including Sky’s main Pay-TV competitors such as Virgin Media). However, Sky has long had a comparatively closed ecosystem, but this is now changing. The benefits to Sky integrating Netflix outweigh any potential concerns; mainly that it can keep viewers within its platform, rather than them having to leave the Sky domain to access Netflix via a third-party platform, whether on a smart TV, streaming box/stick or games console. This also adds value and can ultimately help reduce churn.
According to Futuresource’s recent ‘Living with Digital’ consumer research, over 40% of Sky subscribers already use Netflix in the UK, which will skew even higher amongst Sky Q customers (the partnership covers only Sky Q customers, which is likely due to technical reasons rather than commercial ones). This provides Sky Q customers with an improved method for accessing a third-party service that many of them already have.
Given Netflix’s changing strategy in recent years, with its focus on becoming a premium original content producer, it could be argued that Netflix is now more like HBO’s premium service in the USA, whereby all Pay-TV operators and cable companies carry the service, rather than treat it as a competitive distribution platform.
Additionally, there is little content overlap between Sky and Netflix. In the UK, where the integration will first occur later in 2018, Sky has first pay-window deals with all the major Hollywood studios. Netflix’s main third-party movie deal in the UK is with Lionsgate. Plus, it is aggressively pushing its own Netflix exclusive movies such as Bright and The Cloverfield Paradox. It also has selected library movie content from most of the major studios.
On the TV side, where both excel, a large proportion of content is available exclusively on one platform compared to the other, including Netflix’s 120 original TV series franchises and Sky’s 50+ shows it says it will have by the end of 2018. Sky also has its exclusive licensing agreement with HBO and others, creating a pretty impressive combined roster.
Netflix has always been quick to introduce the latest viewing technology to its platform, with Sky also announcing it will introduce HDR support as part of its drive to continually improve viewing experiences.
The announcement follows the one from a few days previous, with Sky firming up its plans to launch Sky over IP service to reach more households, without the need for a satellite dish – which has many additional implications worthy of separate discussion. A similar deal with Spotify has also been announced, again, arguably a long overdue no-brainer.
When Netflix launched in the UK, it stated it was not competing with Sky, which some disputed at the time. Although cord-cutting is starting to make some small inroads in Europe, Netflix is more complementary to Sky and other Pay-TV operators than it is cannibalistic. Sky’s Now TV service also provides an alternative for those less keen on being tied to a Pay-TV contact. As consumers become savvier to the different video subscriptions on offer, this move shows that Sky wants to complement these other services to enhance its own, rather than compete against them.