The Piar ll - Sky · The Piar ll Pay-TV as an ... 4.1 HDTV and 3DTV 20 ... Sky employees, at an average of €607,000, was more than twice the average found in the German TV sector

The

Pillar Pay-TV as an economic factor:

The economic impact of Sky on Germany

5


Management summary 6

1 The TV market in Germany 101.1 Europe’s biggest TV market 10 1.2 Pay-TV as the third pillar of TV entertainment 101.3 Huge growth potential for pay-TV in Germany 11

2 Sky: A brief profi le 12 2.1 Comprehensive range of services 122.2 Dynamic business growth 122.3 Clear market leader in pay-TV 13

3 Stimuli for competition 16 3.1 The TV market and programming 16 3.2 The market for paid content 173.3 The business-to-business market 183.4 The future of TV 19

4 Stimuli for innovation 204.1 HDTV and 3DTV 204.2 Non-linear TV 204.3 TV on the go 214.4 Advancing future technologies 214.5 Programming innovations 22

5 Employment-, income-, and tax-related effects 235.1 Direct effects 235.2 Indirect effects 235.2.1 Film and TV production sector 235.2.2 Licensed sports 245.2.3 Bars and restaurants 245.2.4 Customer service 255.2.5 Logistics sector 255.2.6 Electronics industry 255.2.7 Miscellaneous 265.3 Summary of overall effects 26

Content

HMR International GmbH & Co. KGHMR International is one of the leading consultants for media companies in Germany. Established in 1995, HMR offers integrated consulting servi-ces for the media and TV sectors. The company’s business operations are based on intensive and continuous monitoring of international market and programming activities, and close contacts of the shareholders within the German and international media industries.

Presentation of the study on 4th March 2014 atInstitut für Medien- und Kommunikationspolitik gGmbHFasanenstraße 7310719 Berlin

7


Foreword

This study focuses on various areas in the business environment and sphere of infl uence of the pay-TV broadcaster Sky. Desk research, in-house market analyses and assessments are used to identify development trends and market events related to competition and innovation-related stimuli as well as microeconomic and macroeconomic relationships. Available data from publicly accessible sources for the period from 2008 to the present along with information obtained from the company were used to evaluate and describe relevant factors. Available and third-party industry data was used to determine employment effects and market indicators.

The effects indicated below are sample sectional perspectives, and do not represent a detailed or complete economic value-added assessment that would be necessary for a full economic analysis required to evaluate the gross domestic product. In addition, unidirectional statements, assumptions and estimates are made with an attributable effect on the fi rst reference plane. Care was taken to conservatively assess potential and assumptions. The economic effects indicated are based on the active market role of the broadcaster. Accordingly, one shall only make limited converse arguments, if any at all, pertaining to the market or economy, as the scenarios developed would be purely speculative and market resources and income would be utilized in a different manner.

The media and communications industries operate through a complex array of media, political and economic factors. This frames the unique way in which they are perceived. It is also true, however, that a strong economic foundation is required in order to achieve relevant creative and journalistic effects over the long term. And given the globalization of digital distribution struc-tures and formats, it must be noted that the strong national ties in the media and communica-tions sectors continue to be important. Hollywood and Silicon Valley in the United States, for example, are not systems that can be duplicated elsewhere at will. Similarly, the German-based media industry (in the broader sense) must also continuously examine the economic viability of its individual segments, even within the scope of international comparisons.

One segment in the entertainment and media industry has demonstrated particularly strong and rapid growth potential in Germany over the last years: pay-TV. While just a few years ago, subscription TV was still assumed to have no commercial future in Germany, it is now consid-ered to be the area of TV entertainment that offers the best growth prospects and one that can generate groundbreaking stimulus in many areas.

Due to its size and success, pay-TV is now fi rmly established as an independent third pillar of TV entertainment in Germany, alongside license-fee- and advertising-funded TV. Launched as a niche service, the pay-TV segment has now become a mass market. Market forecasts are unanimous in predicting that the pay-TV market in Germany will continue to grow at a similar pace in the coming years, even in an environment where telecommunications providers and streaming services pose increased competition.

The dynamic growth of pay-TV and the establishment of this segment as a third pillar of TV entertainment in Germany make it important and necessary to perform a more detailed eco-nomic analysis of the pay-TV market and of the effects and infl uences pay-TV providers have on the overall market. The aim of this study is therefore to analyze the signifi cance of pay-TV for the TV industry in Germany and to assess its effects on the overall market. As Sky is the market leader in German pay-TV by a large margin, this study focuses on an analysis of the economic importance of this company to TV entertainment in Germany. To this end, the business opera-tions of this broadcaster are examined for their effects on market competition and sector innovation, as well as employment, income and tax revenues.

The obtained fi ndings are remarkable. The scale and intensity of the employment, consumption and tax effects generated by Sky in upstream and downstream businesses were particularly surprising. There is potential to do even more in these areas and to generate new outcomes for creative professionals, service providers and producers.

Dr. Lutz HachmeisterManaging Director HMR International; Founding Director of the Institut für Medien- und Kommunikationspolitik (IfM)

Methodology

Sky Deutschland: current company fi gures

This study is based on the key fi gures as of 31 December 2012, even though some more recent fi gures are available now. This is the only approach, however, which made it possible to illustrate the correlations between all the industry data considered in the scope of this survey and subsequently calculate the economic impact of Sky at a specifi c effective date.

In 2013, Sky continued to grow and was able to signifi cantly improve all relevant company KPIs in comparison to the previous year:

• Subscribers: 3.667 million (up 9.0 percent)• Revenues: €1,546.4m (up 16.0 percent)• Average revenue per customer per month: €33.51 (up 5.0 percent)• Sky+ subscribers: 1.480 million (up 59.4 percent)• Premium HD subscribers: 2.025 million (up 26.7 percent)• Sky Go customer log-ins: 70 million (up 109 percent)• HD channels on Sky: more than 80

6


This study analyzes the economic impact of Sky Deutschland AG, the market leader in the pay-TV segment of the TV entertainment industry. Examined in particular were the stimuli generated by the company on: the market’s competition, the development and advancing of innovations, employment, income, and tax revenues in Germany. Even though the study cannot provide a comprehensive assessment of the company’s macroeconomic effects due to missing or market-sensitive data, its objective is to highlight Sky’s relevance to the media industry and affi liated sectors using selected economic factors.

General market conditions for pay-TV

The German TV market is the largest TV market in Europe as measured by the number of TV households (38.0 million in 2012) and revenues (€10.3bn in 2012). Due to exceptional growth (increase in total revenues between 2009 and 2012: 71.8 percent), pay-TV has now established itself as the third pillar of TV entertainment in Germany, alongside license-fee- and advertising-funded TV. Market analyses assume that the German pay-TV market will continue to record double-digit growth rates in the coming years and contribute signifi cant stimulus to the future development of TV entertainment.

Sky is the clear leader in the pay-TV market. The MDAX-listed company generated 72.5 percent of pay-TV revenues in Germany in 2012. The company was able to increase its revenues by 47.8 percent between 2009 and 2012, a rate far higher than the overall TV market. The productivity of Sky employees, at an average of €607,000, was more than twice the average found in the German TV sector. Due to high growth rates over the last years, Sky’s revenues of €1.3bn are now approaching the revenue volumes achieved domestically by Germany’s two major free TV broadcasters (RTL Media Group: €2.0bn, ProSiebenSat.1 Media AG: €1.9bn).

Management summary Stimuli for competition

Sky’s portfolio of more than 70 TV channels considerably expands the range of TV programming offered in the German market. Sky broadcasted around 460,000 hours of programming in 2012, largely in HD, while the net broadcasting time of all eight major German TV stations (Das Erste, ZDF, RTL, Sat.1, ProSieben, Vox, RTL II, and Kabel Eins) was just 59,000 hours. No other broad-casting organization has a more extensive range of TV network premiers and high-quality productions, more sports coverage or more documentaries than Sky.

Sky and its predecessors have been active in the pay-TV market since 1991, and have had a major infl uence on its structure and development. The current success of paid content in Germany, including video-on-demand services, is inconceivable without Sky’s contributions to the market over the past 22 years. Sky can therefore be described as the pioneer of pay-TV in Germany, and as a key stakeholder among paid content providers thanks to its market-leading role.

Sky is also a source of considerable competitive stimuli generated by multiple broadcasting methods (satellite, cable, internet) and usage options (linear, time-delayed, selective, mobile/on-the-go, on a variety of receiving devices, etc.). This highly diversifi ed broadcasting scheme combined with Sky’s programming portfolio is unique in the German TV market and puts signifi cant competitive pressure on free TV networks and other pay-TV providers in terms of technology and programming (“competition for content”). In addition to private customers, Sky also provides services for commercial customers, particularly hotels, bars and restaurants, and digital out-of-home/digital signage. By steadily increasing its commitments in these areas, Sky is stimulating growth in these markets and raising the intensity on the competitive playing fi eld.

98

As a result of its exceptional growth, pay-TV has fi rmly established itself as the third pillar

of TV entertainment in Germany, alongside public broadcasters and advertising-funded TV.

Sky is the clear pay-TV market leader with revenues of €1.3bn, 3.4 million subscribers and

more than 70 channels (as of 31 December 2012).

9

1110


Stimuli for innovation

Sky is positioned in the German TV market as an innovation leader and it has in fact pursued groundbreaking innovations in the German TV landscape more intensively than its competitors. For instance, back in 2003, the company was the fi rst media provider in Germany to deactivate its analog signal and has since operated solely on the current digital standard. In 2006, Sky launched the fi rst HD service based on the new standard in the market and offered the most extensive HD product range available in German-speaking countries from a single source. Sky was also the fi rst media company to launch a 3D channel in 2010 and made a major contribution to the development of linear 3D TV in Germany. In 2012, the company tested a live production of a football game in Ultra HD for the fi rst time in German TV history.

Moreover, Sky generated considerable stimulus for innovation with its Sky+ hard disk receiver, the Sky Anytime on-demand service and the Sky Go over-the-top service. Sky Go allows cus-tomers to also access Sky programming online on the PC, iPad, iPhone, iPod touch or Xbox 360. Supported by a 2-terabyte hard disk for the HD receiver and mobile recording via iPhone, iPod touch and iPad, Sky offers customers unmatched high-performance, future-oriented technol-ogy. Sky also generates a stimulus to innovation through programming, including its award-winning sports formats such as Sky90, Samstag LIVE!, Mein Stadion, Inside Report, and the Bundesliga conference. Sky Sport News HD, the only 24-hour sports news channel in Germany and Austria, is one of the most frequently quoted news sources in the sports world. In sports reporting, Sky has repeatedly won the SPORT BILD AWARD for Best TV Sports Editorial Team.

The high number of innovations is one reason why the average age of Sky’s audience is consid-erably lower than the industry average. Sky’s new customers have an average age of only 39.7 years, and about one third of all new customers fall into the age-group of 14 to 29 years.

Employment-, income-, and tax-related effects

Sky’s activities impact the German economy in numerous ways. Among other things, the pay-TV provider is one of the largest buyers of sports licenses in Germany. In professional football alone, Sky accounted for approximately 50 percent of all proceeds from media rights sales and around 10 percent of the total revenues of German professional football in 2012.

Sky sports bar subscriptions have an even more signifi cant economic effect: According to recent studies, each week 1.3 million people visit a Sky sports bar to watch Bundesliga matches live. This generates additional net revenues for the gastronomy industry amounting to €1bn per year.

Although Sky itself has just 2,196 employees (as of 31 December 2012), an analysis of Sky’s market activities shows that at least 21,588 other jobs in the areas of fi lm and TV production, licensed sports, bars and restaurants, customer service and logistics are directly attributable to Sky. This corresponds to an employee-related multiplier of 9.8, meaning that every job at Sky generates an average of around ten additional jobs in Germany directly attributable to Sky.

These jobs represent a net income of about €350m, which to a large extent refl ects consumer spending, and thus in turn results in downstream revenues and employment effects. The government collected about €200m solely from payroll taxes and contributions that are directly or indirectly attributable to Sky. Tax revenues are many times the amount determined here when other taxes directly paid by or indirectly attributable to Sky, such as revenue, business, and withholding taxes are included.

The analyses performed here include only those areas that were amenable to a scientifi c approach. The impact that Sky has on other sectors, such as the electrical equipment industry, the advertising market or the IT and technical infrastructure sectors were not included due to a lack of valid data. One can therefore assume that the company’s real impact on Germany as a business location is signifi cantly greater in scale than the fi gures determined here.

Sky is the pioneer of pay-TV in Germany. It is an innovation leader and driver in the German

TV entertainment market.

Approximately 24,000 jobs in Germany generating a net income of around €350m and

payroll-related taxes of at least €200m are connected to Sky.

1312


1.1 Europe’s biggest TV market

Measured by the number of TV households (38.0 million in 2012) and revenues (€10.3bn in 2012), the German TV market is the largest TV market in Europe. It is one of the highest revenue-gener-ating TV markets in the world after the United States. Germany accounts for around 22 percent of all income in the European TV industry and nearly fi ve percent of all income in the global TV industry.1

Public TV stations generate the largest revenues in Germany. License fees alone amounted to €4.5bn in 2012. Net TV advertising revenues were around €4bn, while German pay-TV revenues were €1.8bn.2

Despite the internet and other media, TV remains the primary medium in Germany. On an average weekday, TV reaches 70 percent of the total population. Average daily TV viewing time in Germany has risen almost steadily in the past decades and stood at 3 hours and 42 minutes in 2012.3

1.2 Pay-TV as the third pillar of TV entertainment

While net advertising sales of private TV stations have stagnated in recent years, pay-TV revenues in the same period recorded double-digit growth each year. Between 2009 and 2012, revenues in the pay-TV market rose by 71.8 percent. Initially launched as a niche offering, the pay-TV segment has now become a mass market. It is therefore safe to assume that the current ratio of pay-TV revenues to overall TV revenues (17.9 percent) will continue to rise substantially, and that pay-TV will eventually become a third pillar in Germany with the same economic impor-tance as license-fee- and advertising-funded TV.4

The number of pay-TV channels has grown rapidly in Germany over the past ten years. Almost 50 percent of the nation-wide private television programs are currently on a pay-TV channel, offering practically a full range of programming that includes entertainment, sports, documen-taries, children’s programs and music.5

1 The TV market in Germany

Net advertising revenues

of private TV channels

(in € million)

Pay-TV revenues

(in € million)

3.386

2009

3.676

2010

3.699

2011

3.762

2012

1.071

2009

1.200

2010

1.456

2011

1.840

2012

Pay-TV programs by genre

(as of 1 June 2013)

9

8

40

16

16Documentaries

Children’s programs

Music

Sport

Entertainment

Nation-wide private channels

26

5139

58

10

33

14

75

21

37

14

77

18

45

17Free TV niche channel

Free TV teleshopping

Pay-TV program

Free TV full program

2003 2006 2009 2012

Largely stagnating net advertising revenues for German private TV channels.

Approximately half of all private TV programs in Germany are pay-TV channels.

High growth rates for pay-TV revenues in Germany.

Pay-TV channels cover nearly the full spectrum of programming.

1.3 Huge growth potential for pay-TV in Germany

Market forecasts agree that pay-TV will continue to grow rapidly in Germany. Pricewaterhouse-Coopers, for example, expect the number of pay-TV households in Germany to increase to 12.2 million by 2017. Commerzbank analysts forecast that pay-TV will reach a market share of 24.7 percent in Germany as early as 2014.

Compared with other countries, Germany offers enormous growth potential for subscription TV. Domestically, 6.1 million of the approximately 38 million TV households had pay-TV in 2011, while the UK, France and Italy each had pay-TV in more than 10 million households – despite a far lower total number of TV households. In Germany, 26.5 million households were already digitalized in 2011 and therefore technically capable of receiving pay-TV programming.6

Number of German pay-TV households

(in million)

7,0

2011

9,6

2013e

11,0

2015e

12,2

2017e

Pay-TV penetration worldwide

(2011, in millions of households)

6,1

20,4

11,4

14,3

9,3

3,3

13,6

3,7

7,3

10,2

6,9

6,8

DUK/IrlFI

Analog TV households

Digital TV households

Digital TV households with pay-TV

The number of pay-TV households will increasesignifi cantly in the next few years.

There is substantial growth potential for pay-TV in Germany.

At a global level, not only is pay-TV the fastest growing segment in the TV market in terms of sales, but also the largest one. Around 50 percent of all global revenues in the TV industry are generated by subscription-funded TV stations. As that share is currently only 17.9 percent in Germany, there is still substantial potential for further growth.7

1514


Development of revenues per subscriber

(in €, monthly)

25,46

2009

28,68

2010

30,46

2011

31,90

2012

Development of number of employees

(in employment relationships)

1.435

2009

1.622

2010

1.947

2011

2.196

2012

2.3 Clear market leader in pay-TV

Sky has played a key role in developing the pay-TV market in Germany. The company and its predecessors have been present on the market since 1991 and have infl uenced it signifi cantly over the past 22 years. With revenues of €1.3bn (as of 31 December 2012), Sky is rapidly catching up with the other major TV companies in Germany. The ProSiebenSat.1 Group had revenues of €1.9bn and the RTL Mediengruppe Deutschland recorded revenues of €2.0bn over the same period in Germany.8

Measured by total TV revenues of €10.3bn in 2012, Sky now has a share of 13.0 percent. If the TV license fees of €4.5bn paid to public broadcasters are deducted from TV revenues, Sky’s share rises to 23.1 percent.9

Sky generates 72.5 percent of the total revenues in the German pay-TV market and is therefore the clear market leader. With 3.4 million subscribers (2012), Sky accounts for 43.3 percent of all pay-TV customers. Unitymedia KabelBW, Kabel Deutschland, SES Astra / HD+, Deutsche Telekom and Vodafone were distant followers.10

Sky’s above-average growth is also demonstrated in per capita sales: In 2012, each of Sky‘s 2,196 employees generated an average of €607,000 in revenues. This amount is considerably higher than the industry average of about €234,000 for the TV market, indicating the very high level of productivity of Sky’s employees.

More and more subscribers request an ever increasing volume of Sky services.

Sky increased its number of employees at a faster pace than the industry average.

2.1 Comprehensive range of services

Sky is the leading pay-TV provider in Germany and Austria with 3.4 million subscribers (as of 31 December 2012). Sky offers its subscribers more than 70 TV channels, most of which broadcast 24/7. The range of programming includes feature fi lms, series, children’s programs, documen-taries and live sports. The last category includes live football (Bundesliga, 2nd Bundesliga, DFB-Pokal, UEFA Champions League, UEFA Europa League, and major foreign leagues), Formula 1, tennis, golf, US sports and beach volleyball, as well as the 24/7 sports news channel Sky Sport News HD.

Via satellite, cable and the internet, Sky reaches almost every household in Germany and around 95 percent of all households in Austria. Sky programming can also be received via the internet and on the iPad, iPod touch and Xbox 360 via the over-the-top application Sky Go.

With a portfolio of up to 60 own and third-party HD channels made available to its subscribers, Sky offers a very comprehensive spectrum of high-defi nition television in Germany and Austria. The range of channels also includes a 3D channel.

Sky customers can use the Sky+ hard disk receiver to record, pause and rewind programs. Subscribers can also use this receiver to access the video-on-demand offering Sky Anytime, and order movies via the pay-per-view option Sky Select.

2.2 Dynamic business growth

Sky has experienced extremely dynamic growth since 2009. By the end of 2012, the number of subscribers had risen by 36.2 percent, revenues by 47.8 percent, revenues per subscriber by 25.3 percent, and the number of employees by 53.0 percent.

2 Sky: A brief profi le

Development of number of subscribers

(in million)

2,470

2009

2,653

2010

3,012

2011

3,363

2012

Revenue development

(in € million )

902,1

2009

976,8

2010

1.138,7

2011

1.333,2

2012

Between 2009 and 2012, Sky added around one million subscribers

Between 2009 and 2012, revenues increased by nearly 50 percent

17


16

Sky

2,196 employees generated €1.3bn in revenues in 2012. Sky is growing fi ve times faster than the TV market as a whole. The productivity of Sky employ-ees is more than twice as high as the market average.

TV production industry

Around 1,000 jobs in TV production companies are fi nanced by Sky’s production expenditures, which total around €90m.

Licensed sports

Sky generates over 10 percent of the total revenues in professional football in Germany. More than 1,700 jobs related to the Bundesliga can be attributed to Sky.

Around 24,000 jobs that depend on Sky generate net income of approximately

€350m, resulting in wage-dependent taxes in the amount of at least €200m.

With revenues of €1.3bn, Sky generates additional revenues in the German

economy of at least €2.0bn.

Customer service

925 jobs in external customer service companies are fi nanced by Sky.

Advertising industry

With €183m in gross advertising spending, Sky is one of the largest advertisers in Germany.

Logistics industry

With 1.8 million package deliveries per year, 120 jobs in the logistics industry are fi nanced by Sky.

Electronics industry

The electronics industry generates several hundred million Euros per year with set-top-boxes and other hardware.

Innovation

Sky is the innovation leader in the German TV industry, particularly with regard to HDTV, 3DTV, non-linear, and mobile TV.

The economic impact of Sky Deutschland as of 31 December 2012

Gastronomy

17,850 jobs are fi nanced with €1bn additional revenues ge-nerated in Sky sports bars.

Entertainment

In 2012, 3.4 million households had access to more than 70 additional channels – linear, non-linear, on-demand, at home and on the go.

1918


The business model of a subscription-funded broadcaster differs greatly from that of a license-fee- or advertising-funded TV provider. While funding for the latter two comes from a public institution or the advertising industry, subscription TV depends on the willingness of viewers to regularly pay for the provided product. Pay-TV providers therefore gear their business decisions more on viewer demand and strive to offer added value via programming, technologies and services to justify the price of the subscription from the perspective of the customer. Pay-TV can thus be expected to provide major stimuli for the future development of TV and for competition on the TV market.

3.1 The TV market and programming

Sky’s portfolio of more than 70 channels makes a major contribution to the range of TV pro-gramming offered on the German TV market. The channels broadcast by Sky were either developed by Sky itself (e.g. Sky Bundesliga, Sky Cinema, Sky Atlantic HD, and Sky Sport News HD) or are provided to Sky by independent companies. They therefore represent an extensive and high-quality addition to the existing range of programming in Germany. Without Sky, numerous fi lms and series, sport broadcasts and documentaries would not be available to German TV households.

Sky broadcasts around 460,000 hours of programming in 2012. In contrast, the total net broad-casting time of all eight major German TV stations (Das Erste, ZDF, RTL, VOX, RTL II, Sat.1, ProSieben, Kabel Eins) was around 59,000 hours for the same period.11 No other media outlet (ARD, ZDF, RTL Mediengruppe, ProSiebenSat.1 Media) has such an extensive range of program premiers and high-quality productions, a more comprehensive sports coverage or more documentaries than Sky. Sky also offers an extensive and varied range of programming for children.

No other TV broadcaster provides an average of 20 TV network premiers per month – up to one year before being shown on free TV. Nearly all fi lms are broadcast in HD, in the original lan-guage version and with 5.1 audio in Dolby Digital. Thanks to the 1080i broadcasting format, they have the highest resolution currently available on TV.

3.2 The market for paid content

Competing pay-TV providers in Germany also benefi t from the channels offered by Sky. This applies to the cable network operators Kabel Deutschland and Unitymedia KabelBW in particu-lar, and to a lesser extent, the IPTV and mobile platforms of Deutsche Telekom and Vodafone. They all use Sky’s pay-TV programming on their networks and thus enhance the attractiveness of their own range of programming.

Greater acceptance and the popularity of pay-TV also have a positive effect on other paid content providers such as Maxdome, Lovefi lm, Videoload, iTunes and Watchever. While only 1.1 million people used video-on-demand in Germany in 2009, this fi gure rose to 2.5 million in 2011. Between 2009 and 2012, revenues from the video-on-demand market rose by 490 percent to €124m.12

Having done business for many in the industry and due to its market-leading role as a key stakeholder among paid content providers, Sky has had a major infl uence on the structure and competitive landscape of the pay-TV market. As such, Sky is not only the market leader in pay-TV, but the company also serves as a pioneer for all paid content providers in the German TV market.

3 Stimuli for competition

2120


3.3 The business-to-business market

Sky also offers premium TV to commercial businesses, enabling them to increase the appeal of their own products and services. These enterprises include, in particular, hotels, bars and businesses requiring digital-out-of-home or digital-signage products. Hotels: differentiation with premium service

Hotels have been offering their guests pay-TV programs in addition to free TV for decades. While this service used to involve high investments for hotels, today it only requires a comparatively simple technical infrastructure. As a result, an increasing number of hotels are inquiring about such services to differentiate themselves from the standard options provided by hotels. Sky is the market and innovation leader in this segment.

Bars and restaurants: sales growth from live sports broadcasts

Experiencing live sport broadcasts with friends has become a trend, and this trend has become a signifi cant revenue source for bars and restaurants, as guests of sports bars not only eat and drink during broadcasts, but also before and after. Sky developed this segment based on exclusive sports broadcasting rights, and has become the clear leader in the market. Through its substan-tial number of live sports broadcasts and its Sky Sports News HD channel, Sky presents an offer that bars and restaurants can use 24 hours a day as additional added value for their guests.

Digital out of home/digital signage: entertainment in public spaces

An increasing number of information screen and display operators are seeking appropriate premium content to entertain and inform people in public spaces (e.g. subway stations, and central traffi c areas) or commercial areas (e.g. fi tness centers, offi ces, and shopping centers). Thanks to its exclusive broadcasting rights and ever increasing involvement in these areas, Sky ensures that competition in these markets will develop and intensify.

3.4 The future of TV

The introduction of digital TV has not only established new technologies and standards, but it has also changed user behavior. TV and the internet are continuing to merge, while offering interactivity, a high level of individualization, as well as entertainment and information at home and on the go.

Early on, Sky took the approach of providing programming on as many end user and playback devices as possible. Sky therefore acts as a single source for traditional linear TV entertainment as well as time-delayed and selective TV (on demand). In addition, TV channels are broadcast via both traditional TV and the internet, so that programming can be accessed on TVs, PCs, tablets, smartphones and game consoles – regardless of time, place and device. A single source combining this strategy and extensive broadcasting technology is unique in the German market.

2322


4.1 HDTV und 3DTV

Sky rolled out the world’s fi rst HD product based on the new standard in 2006. In the years that followed, the company was the only TV broadcaster in German-speaking countries to offer three 24-hour channels with programming in the new, high-resolution HDTV format. At that time, only Sky customers could actually use their HDTV sets for watching sharp and clear HD content. In the last few years, Sky steadily increased the number of HD channels available to subscribers and offered more than 60 own and third-party HD channels (by 2012).

In 2010, Sky launched the fi rst 3D channel in German TV, offering movies, live sports events and documentaries in 3D. Sky is therefore the clear innovation leader in Germany in terms of HD and 3D TV. The company is now working on the introduction of Ultra HD and is also one of the pioneers in this fi eld. In 2013, Sky received the “HDTV Provider of the Year” award (by the Auerbach Verlag) for the third time in a row.

More and more customers are taking advantage of Sky’s HD offer. In 2006, around 2 percent of customers had HD reception, and in 2012 this number had risen to 67 percent. In contrast, according to ASTRA Satellite Monitor 2012, HD households represented just below one third of all TV households in Germany. While HDTV has already become a standard for Sky customers, TV viewers without a Sky subscription still predominantly watch lower-quality standard-defi ni-tion television (SDTV).

4.2 Non-linear TV

An increasing number of people are using TV services in a non-linear fashion, meaning that they are watching shows in a time-delayed manner. Sky was one of the fi rst TV providers in Germany to pick up on this trend, and provided its customers with hard disk recorders as early as 2005 and high-quality HD hard disk receivers in 2010. The device allows viewers to record, pause and rewind programs, and also provides video-on-demand free of charge with Sky Anytime and on a pay-per-view basis with Sky Select.

Since 2013, Sky has offered an optional 2-terabyte hard disk for the receiver, which provides archiving capacity that is unmatched in the market (around 600 hours of programming or 200 HD movies) and further enhances Sky’s video-on-demand service. Thanks to mobile control via iPhone, iPod touch, and iPad (mobile record), programs can be recorded from anywhere. No other provider in Germany offers its customers this level of high-performance, future-oriented technology.

4.3 TV on the go

The Sky Go service allows customers to also access Sky programming online, or using an iPad, iPhone, iPod touch or Xbox 360. This allows subscribers to receive and view movies, series, sports broadcasts, documentaries, and children’s programs on a wide variety of platforms, independent of time and location.

By providing a regularly updated selection of programming, the Sky Go service quickly estab-lished itself as the market-leading, over-the-top content provider in Germany, posting 33.3 million sessions in 2012. In 2013, Sky Go received both the main award (Outstanding Achievement in Connected TV Award 2013) and the award for “Best use of OTT by a Pay-TV Operator” at the Connected TV Awards.

4.4 Advancing future technologies

In addition to the innovations described above, Sky has also helped promote a large number of future technologies in the last 22 years. Some examples are:

4 Stimuli for innovation

Development of the number

of HD channels on Sky

Sky subscribers with HD reception

(in thousands)

2006 2007 2008 2009 2010 2011 2012

3 3 512

19

42

62

Sky has been investing in HDTV since 2006 and is consistently increasing its number of HD channels

Well over half of all Sky subscribers request its HD product

Year Innovation

1996 DF1 is established as the fi rst digital TV provider in Germany.

2003Sky becomes the fi rst media company in Germany to switch over completely to digital reception.

2010Sky becomes the fi rst media company in Germany to stream TV programs to the iPad.

2010Sky becomes the fi rst media company in Germany to broadcast a sports event live and in 3D.

2011The fi rst live streaming application for the iPad evolves into Sky Go, now the market-leading OTT pay-TV service in Germany.

2012Sky becomes the fi rst media company to test the live production of a football match in Ultra HD.

676

974

593

404

268

735

1.514

2009 2010 2011 2012

HD-WeltPremium-HD

2524


The fact that Sky’s innovations accurately refl ect the pulse of the times is demonstrated by the high demand for its products and services. Sky achieved its highest growth rates with its premium HD offer, the Sky+ hard disk receiver, and the Sky Go OTT service. The demand for innovative products is particularly high among younger customers. As a result, unlike the average for the market (48.5 years old),13 the average age of Sky viewers is declining (44.7 years old). Sky’s new customers even have an average age of only 39.7 years, and about one third of all new customers fall into the age group of 14 to 29 years.

4.5 Programming innovations

In addition to technical innovations, Sky also experiments with innovative and creative broadcasting formats more than any other TV organization. Particularly in sports reporting, Sky has consistently developed new formats and provided viewers with unique perspectives throughout its entire existence. These include, for instance, the current use of various special cameras and full HD productions for the 2012 UEFA Champions League fi nal, with 38 cameras including a spidercam and a helicopter camera. Also included are its own sport formats such as Sky90, Samstag LIVE!, Mein Stadion and Inside Report, and the Bundesliga conference – all of which have received awards. Sky Sport News HD, the only 24/7 sports news channel in Germany and Austria, is one of the most frequently quoted news sources in the sports world. And in sports reporting, Sky has repeatedly won the SPORT BILD AWARD for Best TV Sports Editorial Team.

Outstanding examples of innovation

Sky Sport News HD: the fi rst 24/7 sports news channel in Germany and Austria

Football: conference with simultaneous individual match reporting, Sky HD Fan Zone

Bundesliga: subtitling service for the hearing impaired

Formula 1: broadcast of the races with a choice of multiple camera perspectives

Data center: app providing additional sports information during the sports broadcast

Fiction: broadcast of original versions at the same time as the launch in the US

Series: production of new season lineups by means of a special programming concept

Documentaries: featuring topic weeks/topic-specifi c special programming

5 Employment-, income-, and tax-related effects

5.1 Direct effects

Sky generated revenues of €1.3bn from 3.4 million subscribers in fi scal 2012. The company had 2,196 employees.14 A total of €113.4m was paid in sales and withholding taxes.

5.2 Indirect effects

5.2.1 Film and TV production sector

A large part of Sky’s revenues are invested in programming. In 2012, €796m was spent for this purpose (60 percent of revenues generated). In addition, the company spent tens of millions of euros for the playout of programs.

The largest share of program-related expenses is incurred from broadcast rights to live sports events. The cost of broadcast rights for fi ctional programming follows in second place. The by far largest share of license fees for sports programs and partner channel programming primarily goes to companies in Germany. As a result, Sky makes a major contribution to funding the German affi liates of large foreign fi lm production companies.

The expenses for producing and broadcasting Sky‘s own content and live footage amounted to €94m in 2012. These funds went almost entirely to the TV production industry in Germany and represented an amount equivalent to the revenue of the top 10 production companies, such as Brainpool TV GmbH, MME Moviement AG and Endemol Deutschland Holding GmbH.

Based on the number of employees and average personnel expenses of this sector, Sky’s operations fi nance around 975 jobs in the movie and TV production sectors.

Direct employment-related effects:

Net income: €63mPayroll taxes and contributions: €62.3m

Employment-related effects on the fi lm and TV production sector:

Net income: approx. €24mPayroll taxes and contributions: approx. €16m

2726


5.2.2 Licensed sports

Sky is one of the largest buyers of sport licenses in Germany. In the area of media licensing for German professional football, Sky is the most important licensee of the UEFA and by far the most important business partner of Deutsche Fussball Liga (DFL).

Licensed football in Germany generated revenues of around €2.5bn in the 2011/2012 season. Of this amount, 26.5 percent (€653.8m) was generated by sales of media rights for the Bundesliga, DFB Pokal and international competitions.15 Around 50 percent of the total media licensing revenues for football in Germany originated from Sky.

Sky paid €250m in license fees for the Bundesliga 2011/2012 season alone. This corresponded to 60.7 percent of the revenues generated nationally for Bundesliga media rights (€412m). In addi-tion, Sky paid around €16m to the DFL solely for providing the base signal for the Bundesliga and it invested tens of millions of euros for producing TV images of other competitions and for unilateral production services.

As a result, signifi cantly more than 10 percent of the total sales generated by German professional football in the 2011/2012 season came directly from Sky. This corresponds, for example, to the combined player budgets for Bayern Munich (€125m), FC Schalke 04 (€65m), VfL Wolfsburg (€50m) and Borussia Dortmund (€49m).16 Given that the license fees in the current rights package (2013/2014 to 2016/2017) average €485.7m per year (not including production costs), Sky’s share of the total sales receipts of licensed football in Germany will increase substantially once again.

A total of 15,877 persons were employed full or part-time, or as trainees or temporary employees in professional football in the 2011/2012 season. If the Bundesliga sales generated by Sky were to be put in relation to the personnel expenses in licensed football, Sky would fund approximately 11 percent of these expenses. Based on the average salaries in this sector, around 1,718 jobs in professional German football can therefore be attributed to Sky.

5.2.3 Bars and restaurants

Bars and restaurants that use Sky subscriptions to offer their customers live sports events (“Sky sports bars”) can signifi cantly increase their number of customers and sales. According to studies, 1.3 million people visit a Sky sports bar every week during the Bundesliga season. The average net sales receipt value for food/beverages per guest is €23.44 per week.17

Calculated over the year, this results in net bar and restaurant sales of €1.0bn, which is equivalent to 2.7 percent of the total sales of the food services sector in Germany (2011: €37.5bn).18 This fi gure is signifi cantly higher if the UEFA Champions League, UEFA Europa League, DFB Pokal, second Bundesliga, other live sports events (e.g. foreign football leagues, Formula 1, tennis, golf, and beach volleyball) and Sky Sport News HD broadcasting are included in addition to the Bundesliga.

Employment-related effects on customer service:


Employment-related effects on bars and restaurants:

Net income: approx. €193mPayroll taxes and contributions: approximately €70m

5.2.5 Logistics sector

Sky’s shipments of hardware components and receivers generate an annual volume of approxi-mately 1.8 million parcels. This corresponds to 7,200 parcels per day. Assuming that every courier delivers 60 parcels a day, 120 couriers would work full-time delivering Sky parcels.

Employment-related effects on the logistics sector:

Net income: approx. €2.2mPayroll taxes and contributions: approx. €1.2m

5.2.4 Customer service

In addition to its own service center with around 600 employees (2012), another 840 call center agents employed by external service providers work exclusively for Sky. Sky also employs external companies which provide service and installation for commercial customers. Several hundred employees in these companies spend a signifi cant part of their working time on installation services for Sky. Their work volume corresponds to the equivalent of about 85 full-time employees.

5.2.6 Electronics industry

By offering a large number of HD channels at an early stage, Sky has helped to establish HDTV in Germany and supported its way to success with the goal of eventually establishing HDTV as the new standard. Since appropriate TV-sets are needed to receive HD, Sky is important for the sales of HD-capable TV sets.

Customer surveys show that 85 percent of Sky subscribers have HD-capable TV sets and 23 percent have 3D-capable TV sets. Given that the national market average is 71 percent and 9 percent respectively, this is a clear indication that Sky subscribers have a higher demand for new and high-tech consumer electronics. The average Sky household also has more fl at screens, tablet computers, smartphones and a larger number of TV devices than the average household in Germany.

If one assumes that every Sky HD and 3D customer (2.2 million) has purchased an appropriate end device, then based on a current average gross price of €717 per device, hardware-related total gross sales of at least €1.6bn have been generated since 2009. In addition, sales of set-top boxes and HDD units generated around €193m in sales for the electronics industry in 2012.19

Based on the total number of employees and on the average personnel expenses for the food services sector, these additional sales of €1bn represent around 17,850 jobs attributable to Sky sports bar subscriptions.

Employment-related effects on licensed sports:


28


5.2.7 Miscellaneous

Sky makes many other high value-added contributions in other areas and industries that cannot be included in the calculation of employment-related effects due to a lack of valid data. For example, Sky has been one of the twenty largest advertisers in Germany for years. Nielsen Media Research estimated Sky’s gross advertising expenditures to be €183m for 2012.20 It can be assumed that Sky’s substantial investments in marketing and communication lead to the creation and preservation of numerous jobs in the media industry.

The case is similar with respect to demand for IT and technical infrastructure services. Since Sky’s business model requires large-scale investment in the construction and maintenance of a comprehensive technology platform, Sky is working with numerous service providers and acquires extensive support services worth millions of euros, thereby triggering signifi cant employment- and income-related effects.

5.3 Summary of overall effects

In addition to its own 2,196 employees (31 December 2012), Sky’s business activities in fi lm and TV production, licensed sports, bars and restaurants, customer service, and logistics alone generate at least 21,588 additional jobs in related industries. This corresponds to an employ-ment multiplier of 9.8. On average, every job at Sky generates around ten additional jobs in Germany that can be attributed to Sky.

Based on industry standard pay scales and income rates, these jobs generated a total net income of at least €352.4m in 2012. This net income was used to a large extent for consumption purposes, thus in turn generating additional sales- and employment-related effects further downstream. This net income generates at least €200m in payroll taxes and contributions, which corresponds, for example, to the amount of funding needed for 27,777 students at public universities and colleges.

Total of all employment-related effects:

23,784 jobsNet income: over €350mPayroll taxes and contributions: at least €200m

1 See ALM: Digitalisierungsbericht 2013: Daten und Fakten, p. 11. See Die Medienanstalten: Jahrbuch 2012/2013, p. 68. See VPRT: Pay-TV in Deutschland 2013, p. 6. See http://www.vprt.de/thema/marktentwicklung/marktdaten/studien/content/einnahmen-der-tv-industrie-2011-im-internationalen

2 See Die Medienanstalten: Jahrbuch 2012/2013, p. 68. See VPRT: Pay-TV in Deutschland 2013, p. 11.

3 See http://mediendaten.de/index.php?id=fernsehen-tv-zeitreihe. See Die Medienanstalten: Jahrbuch 2012/2013, p. 54.

4 See ZAW: Werbung in Deutschland 2013, p. 332. See VPRT: Pay-TV in Deutschland 2013, pp. 6 and 11.

5 See VPRT: Pay-TV in Deutschland 2013, pp. 7 ff. 6 See PwC: Global Entertainment and Media Outlook: 2013-2017, p. 83.

See http://www.vprt.de/thema/marktentwicklung/marktdaten/mediennutzung/tv-nutzung/content/deutliches-wachstum-f%C3%BCr-pay-tv-de?c=0

7 See http://www.vprt.de/thema/marktentwicklung/marktdaten/studien/content/ einnahmen-der-tv-industrie-2011-im-internationalen

8 See Die Medienanstalten: Jahrbuch 2012/2013, p. 75 ff. Only the sales of Germany’s free TV business are shown.

9 See Die Medienanstalten: Jahrbuch 2012/2013, p. 83. 10 See Die Medienanstalten: Jahrbuch 2012/2013, pp. 68 and 95. 11 See Die Medienanstalten: Programmbericht 2011, p. 31. 12 See Martens, Dirk / Herfert, Jan: Der Markt für Video-on-Demand in Deutschland,

pp. 103 ff., in: Media Perspektiven 2/2013, pp. 101-114. 13 See Focus, No. 44 (27 October 2008), p. 157 and Focus, No. 16 (18 April 2011), p. 159. 14 These are jobs, not full-time employees as indicated in the annual report. 15 See DFL Deutsche Fußball Liga GmbH: Bundesliga Report 2013, pp. 83 ff. 16 See Rheinische Post: http://www.rp-online.de/sport/fussball/bundesliga/bundesliga-

13-14-die-etats-der-klubs-1.354890817 The fi gures stated here come from a regular panel survey of Sky at Sky sports bars. 18 See http://www.dehoga-bundesverband.de/daten-fakten-trends/umsatzentwicklungen/

gaststaettengewerbe 19 See http://www.bvt-ev.de/bvt_cm/der_markt/cemix.php 20 See ZAW: Werbung in Deutschland 2013, p. 208.

Pictures: © Wilm Ihlenfeld/shutterstock; © Wolfgang Biebach; © Nevada31/shutterstock; © Athanasia Nomikou/shutterstock; KoQ Creative/shutterstock

Sources

Contact

HMR International GmbH & Co. KG

Gesellschaft für Medienberatung

Am Hof 28

D-50667 Cologne

www.hmr-international.de

Tel.: +49 221 788 785 50

Documents

The Piar ll - Sky · The Piar ll Pay-TV as an ... 4.1 HDTV and 3DTV 20 ... Sky employees, at an average of €607,000, was more than twice the average found in the German TV sector