YouView and what it means for Sky

8/3/2019 YouView and what it means for Sky

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YouView impact assessmentAssessment of YouViews impact on the media and telecommunications

market and the direct repercussions for Sky

Alex StreetLondon, 17 October 2011



Table of contents

1

1. Market overview Scope of impact assessment

2. Competitive context The impact of YouView on competitive dynamics

New competitive environment

3. Implications for Sky Counter factual and factual forecasts

SWOT

4. Opportunities for growth Response scenarios for Sky

Emerging revenue opportunities

5. Summary and discussion



This assessment considers the following actors in the value chain as well as thefundamentals of consumer demand in media and telecommunications markets

Market Context

2

Advertising

Subscription

FundingContent

producerAggregators Network

Platform

aggregatorCPE Viewer

Programme

brands

Content

franchising

Local

distribution

Broadcasters

VOD providers

DVD retailers

Closed networks

- Satellite

- DTT

- Cable

- IPTV

STBs

- FTA

- Pay TV

Device

manufacturers

- TVs- Computing

devices

Viewing

behaviour

- Passive /active

Content

preferences

Price sensitivity

Access

Measurement

- BARB

- VOD views

1

Source: Alex Street analysis, industry sources



YouView and IP-delivered services create disintermediation scenarios impactingrevenue opportunities, cost bases, skill-set and technical requirements of actors

Impact of YouView on competitive dynamics

3

2

FundingContent


Platform


.

Aggregator

Platform

CPE

Network

Content

producer

Source: Alex Street analysis



YouView and IP-delivered services create disintermediation scenarios impactingrevenue opportunities, cost bases, skill-set and technical requirements of actors

Impact of YouView on competitive dynamics

4

2

FundingContent


Platform


.

Aggregator

Platform

CPE

Network

Content

producer

Content owners use channel brands and IP

distribution to reach audiences direct

Aggregators use YouView to develop direct

relationships with viewers around traditional STBs

ISPs subsidise YouView boxes and rely on their content

deals and pricing for differentiation

Incumbents launch new IP services

and develop new STBs in response

Integrated

YouView TVs

ISPs develop their own aggregation

and content relationships

Leveraging of content rights and

original content production

CPEs develop aggregation and

content relationships

YouViews IP

capabilitiesmakes new

funding

relationships

possible:

o Direct pay

( subscription

and PPV

o C ompanion

and

additional content

( transactional,

sponsored

basis)

I mplications

for content

value?...

Source: Alex Street analysis



YouView will command majority share of voice in marketing of IPTV but will onlybe a minority player in actual distribution and customer relationships

New competitive environment

5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2010 2011 2012 2013 2014 2015

VOD PVR DVD Linear

Content owners

Flight to quality hits increase in value

middling content struggles

Fragmentation of standards

Aggregators

Data and billing new entrants? Linear ad revenues decline

VOD supply decreases premium

From scheduling to prominence

New aggregators competition

Network

Take up of fibre increases

Reduction in lower tier channels

Network capacity issues?

Platform

Increased SAC costs Price pressure on bundling

Content acquisition costs increase

CPEs

YouView TVs a game changer

VOD-capable HHs Implications across value chainImpact on viewing

3

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 2015

Sky Anytime+ Virgin

BT Vision 1 YouView


Total non linear viewing grows from 7-18%

VOD grows from 1-8% of total viewing



YouView will have a negative impact on Sky revenues and profitability by reducingdemand for Sky services that ultimately lead to changes to Skys cost base

Implications for Sky

6

9.2

9.6

10.0

10.4

10.710.9

11.011.2

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

2008 2009 2010 2011 2012 2013 20142015

Forecast in counterfactual and factual

3

YouView will lead to a loss of

0 .5m subscribers by 2015

resulting in a £250 m loss in

subscription revenues in 2015

and a cumulative loss of £550 m


Strengths

Recognised aspirational brand. Establish pay and premium model

Multiple growing revenue centres

Clearly identifiable competitors and clearly differentiated product

Own customer relationship and data

Secure content rights with little alternative for distribution outside of Sky Ability to go all HD

Strong marketing performance implications for SAC cost?....

Weaknesses

Churn

Half of subs are on basic packages

Price sensitivity of basic subs

VOD and broadband are not market

leading products Capture of customer data and billing

no longer unique

Are revenue and cost centres aligned

to market trends?

Threats

New entrants Tesco, Amazon, Facebook,

Google, Apple have billing and data expertise

Loss of carriage revenues as some

broadcasters go direct

D

irect loss of revenue in film as substitutesemerge

Threat of unbundling

Trend towards end-user device and network

competitor bandwidth advantages

Could all shift revenue and cost centres



Sky is not defined by satellite distribution Skys real strengths are in contentaggregation, rights acquisition and as a marketer of services

Focus on infrastructure and content advantages:

Go all HD

Leverage Anytime+ as parity experience

Acquire critical rights. Compete in breadth and depth

Current operational efficiency and profitability gives scope to give

away more: Churn currently at 10% PA needs to be reduced

Give away low cost or free broadband

Price cutting of services

7

Retrenchment

Response scenarios and opportunities for growth

Launch fibre-based services and reduce reliance on satellite as only

distribution medium:

Major investment in fibre

Collapse channel number and distribute via multicast IP

Build on breadth and depth content proposition

Implication:

Profitability and cost centres hit by change in services and

consumer proposition

Embracing change

4

Sk y Mall and Sk y C redits

An open platform for third parties to develop retail experiences on

TV with Sky taking a % of each sale

Have we exhausted the consumers willingness to spend?

Broadcast development platform

Develop in-broadcast transaction platform enabling incremental transactional opportunities around content

Ex pand upon device subsidy

Opportunity to tie customers into longer contracts by subsidising

additional devices either through JV ( i.e. with 3) or with screen

manufacturers such as LG


O pportunity: 40% of populationhas access to Sky but 83% of

population currently buys

nothing from you

C ontract duration tiered pricing

Introduce 36 month contracts with price incentive

JV partnerships and collaborations

Develop new partnerships Tesco / Blinbox, Amazon

H ome cinema

Develop home cinema proposition with studios



YouView will drive broader take up of pay TV but in the process YouView willundermine the walled garden concept and threaten the economics underpinning it

Summary and discussion

8

Source: Alex Street analysis,

DISINTERMEDIATION

SCENARIOS

Revenue opportunities in direct to market

Requires new skill sets, shift from B2B to B2C and

platforms for billing / data capture

Increase in options and IP connectivity will impact the

value of content

SHARE OF VOICE

Terrestrial promotion of YouView will enhance its

impact and threat

Changes in viewer behaviour will have to be

monetised and audiences flowed effectively

Network capacity management issues

NEGATIVE IMPACT ON SKY

Compared to the counterfactual YouView will have a

negative impact on Sky revenues and profitability

Increased competition impact pricing and changes to

Skys cost base

OPPORTUNITIES FOR

GROWTH

Sky is not a satellite platform Sky is a premium brand

with USPs in r ights acquisition, aggregation and

marketing

3

4

4

2

Trends are not entirely unpredictable

but the challenge is in realigning

Fundamental question over whether the

viewer comes to us or do we have to go

to them

Who will own the data? GAFAs?

A lot of potential threats not a lot of

them will materialise

Opportunity: 40% of population has

access to Sky but 83% of population

currently buys nothing from you

Wheres the next £100m

revenue stream coming from?

Challenge: Realign the walled garden

to a managed open model in which

Sky subs have more transactional

relationships with more companies

some of which are global or have

content aspirations

5

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YouView and what it means for Sky