What’s the frequency, Warners?

Following up on my previous post about the internet and the future of television, there have been some interesting developments […]

And the geeks shall inherit the Earth…

I’m still not convinced that the absolute value in Sky isn’t clear from the subscription pricing: 100+ channels for a tenner; 3 sports channels for another 26 quid.

Certainly, but that’s at least partly historical, and partly so that the basic Sky package is comparable with the license fee. It’s smart pricing. It still doesn’t mean that Sky’s focus is on delivering consumers to advertisers.

Call it inertia or whatever you like, the value of non-sports programming, a few fantastic buy-ins excepted, is almost zero, worse than Channel 5.

But it isn’t almost zero. It’s about equivalent to the license fee.

Nor am I convinced that it’s ‘easier and more profitable’ to get new subscribers than to up-sell (e.g. Sky+, multiroom) and cross-sell (including ads, SkyBet, financial services, and so on) to existing ones.

No, I didn’t say that. I said that all of those things are easier than selling more advertising. They are also more profitable.

I’m still not convinced that the absolute value in Sky isn’t clear from the subscription pricing: 100+ channels for a tenner; 3 sports channels for another 26 quid. Call it inertia or whatever you like, the value of non-sports programming, a few fantastic buy-ins excepted, is almost zero, worse than Channel 5. Nor am I convinced that it’s ‘easier and more profitable’ to get new subscribers than to up-sell (e.g. Sky+, multiroom) and cross-sell (including ads, SkyBet, financial services, and so on) to existing ones. If true, that turns all standard business models upside down.

And I pretty much agree with your last para. It’s almost exactly what Nick said in the piece, in fact. The Beeb can do things other broadcasters can’t because it doesn’t have to turn a profit. It might just come across something that will enable it to self-finance in the future. Then maybe left and right will both have to re-think their axioms and start arguing about something else.

I doubt it – it’s made by Fox, so there is probably some cross-company subsidy. Some of that cost is no doubt offset by selling the terrestrial rights to Channel 4.

But this is beside the point – Sky One commissions a lot of new programming – it doesn’t just show repeats of tested American shows. It’s no different to the BBC commissioning third party programmes.

If your data is right, the subscription costs do not make any sense, as you can get almost whatever you want non-sports, non-movies wise for about a tenner.

Well, my data comes from the last interim financial report, so it’s accurate.

It’s clear from that where they know the value in their schedules lies.

Actually, I’d guess most people sign up for a premium package to benefit from free installation and get free hardware, then inertia means many don’t cancel the premium channels. But you’re probably right to some extent. Sky are attempting to diversify, but it’s a slow process – they built a brand on the back of sports, movies and repeats.

But if they want to deliver any extra money into the business it has to be programming designed to deliver consumers to advertisers in the manner described by Nick in his piece. Otherwise, it’s the annual price increase and no more.

The data simply doesn’t bear this out. It’s far easier, and far more profitable for Sky, to increase subscriber numbers than to increase advertising revenues. It is also less susceptible to cyclical downturns in the advertising industry. It is also easier to sell premium services like Sky+ or multiroom Sky than it is to increase advertising revenue. Your assertion is quite wrong. Sky even state that their corporate strategy is to grow subscriber numbers – they hope to reach 80% penetration of the UK and Ireland market as a target. From the AGM statement:

‘Programming remains at the heart of our business. We are an entertainment and information company above all else and we are always looking to acquire the best content for our subscribers. The last year has shown that we can continue to lead the industry in Britain, bringing new shows and popular movies to our flagship channels, growing the audiences for sport using new technology and providing the finest 24-hour news service in Europe.’

Emphasis mine.

I know that defending the BBC is axiomatic on the left, but to claim it is unique because it is the only broadcaster focussed on content is stretching the truth somewhat. Sure, Sky can’t make the kind of loss-leading programming that the Beeb can get away with, but to suggest they are in different businesses is fundamentally incorrect.

My argument isn’t anyway that Sky aren’t reliant on subs. Of course they are – that’s why they defend their football with whatever it takes cost-wise to buy it. But if they want to deliver any extra money into the business it has to be programming designed to deliver consumers to advertisers in the manner described by Nick in his piece. Otherwise, it’s the annual price increase and no more.

Not true. Over half the programming costs go on non-sports channels. I don’t have the breakdowns of various subscription packages (I assume they are confidential, but they may be on the Sky website), but Sky quite clearly are ten times more reliant on subscriptions to content than to advertising revenue. Hence, their business model is geared more to content than advertising. It wouldn’t matter if they took all advertising off air tomorrow – they would still be pulling in an extremely healthy revenue. Delivering content to customers is exactly what Sky is in the business of doing. Advertising is a nice sideline, but it isn’t the main event. If they make better content, they get an increase in subscriptions, and it will always be easier to get 1 new subscriber than it will to pull in the equivalent of 10 subscriber’s worth of advertising. Sky recognise this, which is why their own advertising has shifted away from the laddish sports’n’movies focus of 3-5 years ago, and onto the more rounded ‘What you want to watch’ focus of today.

In fact, if I were James Murdoch, and I had the balls of myself, I would cut all advertising on all of the main Sky channels just to spite the Beeb, and all the people who bring out the tired old ‘the license fee is worth the lack of adverts alone’ line.

This was probably true in the old BBC 1, 2, ITV, and C4 days, but it’s less true now. Sky, for example, makes over 2bn a year in subscriptions revenue, but only about 200mn a year in advertising revenue. That’s about the same order of magnitude as the revenue they get from cable wholesale and from SkyBet, so it’s really a very small factor in their profitability. It really is in Sky’s best interest to deliver quality content, so the Beeb is very much a competitor, which explains Murdoch’s desire to kill it.