Pay TV and the shift to regional scale
Sky Media’s Jamie West, YouView’s Richard Halton and Decipher’s Nigel Walley.
A possible deal between Virgin Media owner Liberty Global and Vodafone might still be shrouded in speculation, but it has made one thing clear: regional scale is now going to play a much bigger role in the telecommunications industry.
Speaking at Connected Consumer Conference on Wednesday, Nigel Walley, the managing director of consultancy Decipher, said the cost of technology and content rights were now key factors governing a gradual acceleration of regional economies of scale.
“Very slowly we’re seeing the arrival of regional players in what has historically been a market of UK-only players,” Walley said, “[and] you can now see quite clearly there are regional economies of scale to be had around equipment purchase.”
The UK’s mobile, broadband and pay-TV markets have witnessed an array of mergers and acquisitions recently.
Three is set to acquire O2 in a £10.3 billion deal that will create the UK’s biggest mobile operator with 32.9 million subscribers, whilst BT is acquiring EE in a cash and shares deal worth £12.5 billion.
Vodafone – tipped to make a deal with Liberty Global – is returning to home broadband, and launching a pay-TV service later this year.
Meanwhile, in the UK broadband market, BT is following in Virgin Media’s and TalkTalk’s footsteps and is on the way to offering ‘quad-play’ – a bundle of TV, broadband, mobile and home phone – whilst next year Sky will launch a mobile phone service using Three-O2’s network.
Sky also announced the completion of its acquisition of Sky Italia and takeover offer for Sky Deutschland to create ‘Sky Europe’ at the end of last year.
The enlarged group will serve 20 million customers across five countries – Italy, Germany, Austria, the UK and Ireland – with “significant potential” for growth as the company looks to tap into the 60 million households across the five markets that are yet to take pay TV.
Walley said it makes sense for any company to seek the biggest possible distribution of a standard tech infrastructure – from set-top-boxes to cloud servers.
“There are also economies of scale when buying content,” he argued. “Most of these companies now are looking very nervously at the impact of Netflix in the market.”
“One of the things [Netflix] is doing is acquiring content for 20-odd countries – and so realistically if you’re a company like Sky that’s looking to deliver on-demand content, linear content, you need to be buying at scale.”
Responding to Walley’s analysis, Richard Halton, chief executive of YouView, said economies of scale were more dependent on the type of content being produced.
“It works if you’re originating – if you’re Netflix and you’re making House of Cards and you’re in those rights – but the reality is, if you’re trying to buy other people’s content it’s still sold on a very much country by country basis,” he said.
“I completely agree that there’s a technology efficiency and there’s a back office efficiency…I think the content acquisition efficiency is a much, much harder one to realise. Whether [Netflix] is in it for content efficiency, I question that.”
Sky Media’s deputy managing director, Jamie West, revealed that Sky currently spends approximately £650 million a year on UK commissioned content alone.
“And that can be leveraged and extended across all of those territories,” West said, citing Fortitude, which for one series cost Sky £25 million as a single production.
“This was a massive investment which can be taken across territories, across continents, and has already been licensed across different countries and continents.”
West said it was becoming more apparent that there is an increasing differentiation between BT and Sky, which are moving towards content, and Vodafone and Liberty, which West says are moving in the opposite direction.
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