Sky's NOW TV streaming move 'risky', warns analyst

Published Jul 16 2012, 12:47 BST  |  By Andrew Laughlin

The launch of Sky's new NOW TV online streaming service is "not without risk", as it "removes the barrier" of long-term pay-TV contracts, an analyst has warned.

Informa Telecoms & Media senior analyst Ted Hall feels that NOW TV represents a "potentially dangerous move away from the bundled approach to selling pay TV" for Sky.

However, another analyst disagrees, instead saying that NOW TV offers a way for Sky to target an audience that has so far resisted pay-TV services.

Sky will tomorrow (July 17) launch NOW TV on PC, Mac and Android devices, enabling users to stream films from Sky Movies over the internet either via subscription or pay-as-you-go.

Later in the year, the service will expand to content from Sky Sports and Sky entertainment channels, such as Sky Atlantic and Sky1. It will also become available on other connected devices, such as iPhone, iPad, Xbox and YouView, the new BBC-backed Freeview set top box platform.

But Hall feels that while trying to attract a new audience, Sky could risk removing the barrier of a long-term commitment involved with traditional pay-TV models.

"The allure of such freedom could be stronger than Sky intends, with cost-conscious satellite customers now presented with a more flexible alternative - still accessible on the living room TV set - which they can switch to without having to desert their long-trusted pay-TV provider," he said.

"NOW TV also represents a potentially dangerous move away from the bundled approach to selling pay TV - the packaging of popular channels with those that are less desirable - towards an à la carte model.

"With Sky Movies - and later Sky Sports - now available without a basic-tier subscription, as well as on a pay-as-you-go basis, consumers are finally being introduced to the cherry-picking model they always wanted, which the model operators have typically resisted for fear of disrupting the established economics of pay TV."

Hall noted that Sky has "wisely resisted" the temptation to compete on price with streaming rivals LoveFilm and Netflix, as this would have "significantly undervalued" its premium first-window movies content.

However, he said that "what started out as a defensive move against the new over-the-top (OTT) players in town could backfire if cannibalisation of its core business takes hold".

"The key will be to keep NOW TV on a leash. If Sky allows it to become too good, too much like its full subscription service, the operator will stand to lose a sizeable number of DTH [direct-to-home] customers willing to make the OTT switch - too much overlap between the two platforms will start to take the sheen off the appeal of the main Sky TV proposition," he explained.

Hall also noted that NOW TV's launch on YouView will put Sky in the "curious relationship" of distributing its content via a platform that it previously "staunchly opposed".

"With both players now targeting the same free-to-air audience, and via the same device, Sky will be doing so with more of a sense of trepidation, as success for NOW TV via YouView could have major implications for the way the operator delivers and packages its premium content in the years to come," he added.

However, Strategy Analytics's head of digital media analysis and forecasting Ed Barton disagrees that NOW TV poses a major risk for Sky.

Barton feels Sky has acknowledged that the opportunity of online TV distribution is "too big to ignore", and claimed that NOW TV is "not a particularly risky move".

"NOW TV is Sky's vehicle to break out of the constraints of long-term subscriptions and satellite distribution," he said.

"Connectable devices which once constituted threats become opportunities, the size of which should not be underestimated: the number of connected TVs, consoles and tablets in the UK will double to over 26m in 2015 from 13m at the end of 2011.

"Fortunately for Sky, launching NOW TV is not a particularly risky move: it is using the same content rights, distribution technology, sales and customer service infrastructure which underpins Sky TV and Sky Go. NOW TV offers a way to leverage investments the group would be making anyway."

Strategy Analytics estimates that the UK OTT and online video market was worth around $395m last year and that is expected to increase by around 30% in 2012.

Whilst NOW TV will likely further grow the market, it is not expected to significantly impact Sky's core pay-TV earnings.

NOW TV will primarily target the 11m UK homes that don't have a pay-TV service, essentially the Freeview audience, and Barton feels that the deal with YouView is key in this regard.

"NOW TV enables Sky to target the YouView audience and households using competing pay TV services such as Virgin or BT by distributing content to YouView boxes and other connectable devices," he commented.

"It will take time for YouView to grow, however heavyweight backers and ISP bundling suggest it will become a key feature of the UK TV landscape going forward.

"This is a platform which Sky needs to have a presence on and NOW TV enables it to do that while ensuring the Sky brand remains undiluted and representative only of the premium, subscription-based pay TV experience."

Barton also said that the introduction of live sport to NOW TV will offer people a legal alternative to the various illicit online services already offering live sport coverage, particularly football.

"Some [people] will happily illegally stream matches because they don't want to pay for an entire season when they aren't interested in 90% of the games," he explained. "NOW TV will offer the option to pay only for the games they want on an à la carte basis."