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Sky/Discovery Pricing Spat was a Sign of Deeper Market Currents
The well-publicised and highly acrimonious pricing row between Sky and Discovery Communications was settled at the 11th hour on the 31st January 2017 and Sky subscribers will continue to enjoy Discovery’s bouquet of 12 thematic genre channels like Discovery, Animal Planet, TLC as well as Eurosport. The disagreement was simple – Sky said Discovery’s viewing on its platforms has fallen and it did not want to pay what was being asked to renew their long term carriage agreement. Discovery said it is being paid less than it was 10 years ago, despite Sky subscription price rises and a claimed 20% increase in viewing of its channels on Sky platforms (the acquisition of Sky Germany and Italy in this period may well be a factor behind this assertion). Here’s the Futuresource take on the issues which underlay this unusually public spat between these two media giants.
Impact of On-Demand on Linear Viewing
Comparing BARB data for the last 7 months of 2016 with the same period for 2014 does suggest that the share of Discovery’s channel bouquet (excluding Eurosport) has indeed declined. The data also indicates that Sky’s own average channel share over the same periods has been relatively constant.
In our view, this will almost certainly be due in a large part to the impact of on-demand viewing on traditional linear multichannel TV. According to the latest survey in the Futuresource international consumer research program ‘Living With Digital’, 12% of UK respondents now say that SVoD services are their most frequently viewed video platform, up from 6% a year earlier, compared to 15% for Pay-TV channels. There are now approaching 6 million Netflix and 4 million Amazon Prime Video users in the UK (many taking both). As total TV viewing hours are relatively flat, it is inevitable that viewing of these services (as well as other alternative platforms like YouTube) will be taking share from traditional linear TV channels.
To combat the SVoD challenge, Sky itself has been migrating its proposition from linear to On-Demand with Sky Q, Sky+, Boxed Sets, Sky Store, Sky Go and Sky Now. Viewing of Sky Atlantic (which carries HBO content) is 75% on-demand. From 2018 Sky will offer its full content portfolio on its online TV platform Sky Now, which offers both Subscription and PPV/Pass options.
Rising Cost of Sports Rights
Live sports have become a critical weapon in the battle to sustain Pay-TV as Broadband has taken centre-stage in the battle for multi-service subscribers. Sky had to bear a 70% rise in the price of Premier League rights in the last round as a result of competition from BT Sports and is paying a stellar £4.2 billion for 5 of the 7 packages which run for 3 years from 2016. Sky’s profitability dipped 9% in the last half-year and will be looking to keep its results up, especially as it has accepted a takeover bid by 21st Century Fox which values the company at £18.5 billion. Hence an understandable reluctance to pay more for channels which it claims are being viewed less.
Discovery, whose largest shareholder is John Malone (Liberty), acquired the 49% of Eurosport it did not already own from TF1 in July 2015 for €491 million. It too has ramped up sports spending with exclusive rights to the Australian Open tennis and €1.3 billion for Olympics rights for 2016-2024. Over 40% of Discovery’s overall revenue comes from advertising but it will also look to maximize subscription-based income and has been pushing its standalone online Eurosport Player. Although distribution deals with BT and Virgin Media (owned by Liberty Global) remained in place, a blank screen on 10 million+ Sky boxes from 1st February would have left a big hole and it was clearly in the interests of both companies to reach agreement.
Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.