Why Now, and will it work?

Tweet

 Print This Post  Email This Post

By Ed Barton 27-07-2012

Now TV, announced this month, is BSkyB’s vehicle for online TV distribution, an acknowledgment that the UK market opportunity is now too big to ignore. Now TV will offer Sky content online through a variety of flexible charging models without diluting the premium positioning of the core Sky pay-TV brand.

Now TV is an online TV and video streaming service that will target the 11 million UK homes that don’t have a pay-TV subscription. Initially, it will offer movies on both a rental and subscription basis. However, live sport will follow soon after, with events available on-demand. The 2012/13 Premiership season would be an ideal launchpad for the sports segment of Now TV.

Four reasons why Sky is launching Now TV

1. Slowing growth in the core pay-TV business. Following two of the slowest quarters in Sky’s history – subscriber numbers increased by just 15,000 in the first quarter of 2012 – Sky needs to invest in businesses with long-term growth potential, given slowing pay-TV growth. Sky’s strategy of increasing what customers get for a Sky TV subscription has served it well for years. However, the long-term subscription model isn’t going to work in a fragmenting environment in which consumers want more flexibility across more devices.
2. Intensifying competition. Sky has to navigate a perfect storm of slowing growth and intensifying competition from Virgin Media and a slew of newer entrants such as Netflix and LoveFilm. Online specialists like Netflix are particularly adept at targeting the fast-growing market of delivering content to internet-connected devices such as connected TVs, tablets and games consoles. Audiences are increasingly turning to standalone streaming services delivered to online-enabled devices for their viewing needs and Now TV is Sky’s way of ensuring it has a horse in the race.
3. Online streaming is now a viable market. Growth in the audience and usage rates of online streaming services make mass-market propositions such as Now TV commercially viable. Illegal streaming services, in particular for live football, are proliferating and Now TV enables Sky to start monetising this audience by offering a legal alternative. Some 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. Now TV will offer the option to pay only for the games they want on an a la carte basis.
4. Now TV also 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. It will take time for YouView to grow, but heavyweight backers and ISP bundling suggest it will become a key feature of the UK TV landscape. This is a platform that Sky needs to have a presence on and Now TV enables it to do so while ensuring the Sky brand remains undiluted and representative only of the premium, subscription-based pay-TV experience.

Will Now TV succeed?
Now TV is Sky’s vehicle to break out of the constraints of long-term subscriptions and satellite distribution. Connectable devices that 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 more than 26 million in 2015 from 13 million 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 and sales and customer service infrastructure that underpin Sky TV and Sky Go. Now TV offers a way to leverage investments the group would be making anyway.

In framing expectations, we should remember that Now TV is entering a relatively small market by pay-TV standards. In 2011, the UK OTT TV and video market was worth less than US$395m and is likely to grow around 30% in 2012 to top half a billion dollars by year-end.

Although Now TV is likely to grow the overall market, it will be some time before it significantly impacts Sky’s overall revenues. First Now TV must build awareness that it even exists on the YouView EPG and the app platforms on connected TVs and other connectable devices. This is, after all, a new brand. Then it can start the arduous process of driving spending on movies and converting illegal online sports streamers into paying customers.