Sky is starting to emerge as a convergence heavyweight

The convergence business model is a difficult one to crack, though some might argue Sky has the easier path to connected riches, and it is starting to pick up the pace.

Revenues for the nine-months to March-end stood at £10.1 billion, a 5% uplift compared to 2017, adding 480,000 new customers across the group to make 22.9 million. The UK and Ireland accounted for the lion’s share, £6.668 billion, though positive growth was experienced across the group. The only dampener was a decline in profitability in Germany and Austria, down 18% compared to 2017.

“It’s been a good quarter for Sky,” said Group CEO, Jeremy Darroch. “We’ve delivered excellent financial results, with like-for-like revenues up 5% and Established EBITDA up 14%. Against the back drop of a challenging consumer environment, this performance reflects the continual improvement in our broad set of products and services and our focus on providing great value every single day – something recognised by customers now taking over 62 million subscription products from us and our services reaching over 120 million people across Europe.”

This is the interesting position Sky finds itself in. Having moulded its reputation as a pay-TV mammoth, the team ventured into pastures new by introducing broadband and mobile services. It’s the convergence business model which is highly sought by the rest of the communications industry. However, Sky is doing it the opposite to its rivals, such as BT or Virgin Media, both of whom have struggled for years to provide a content-proposition which exceeds incredibly average (at best).

The number of customers at Sky is increasing. Over the last 12 months, Sky has increased the total number of subscribers in the UK by 285,000, though there have been slight declines on the continent. The majority of these customers will be for the content services, though after launching Sky Mobile in the UK the uptake has been quite successful. The MVNO now has 437,000 customers, adding 102,000 new customers in Q3.

At the time of writing, Sky did not respond to a request for more granular insight on broadband/content services, or comparative numbers for converged and non-converged subscribers.

“Another good quarter of growth for Sky, in particular the UK, but some challenges in both Germany and Italy,” said Paolo Pescatore of CCS Insight. “Overall the company is very well placed. It’s been a key period with securing the Premier League rights to 2022 in the UK, announced new partnerships with Netflix and Spotify for Sky Q. As well as the MediaSet and OpenFibre deals in Italy. This suggests that Sky is firmly positioning itself as an aggregator of content and services.”

In terms of creating the converged business model, Sky is fortunate to be tackling it from the right direction. It has developed a successful platform, now it is trying to acquire the skills and business acumen to develop a more substantial mobile and broadband business.

Creating a positive user experience in the mobile and broadband space is scientific. If you can offer good download speeds, minimise not-spots and implement an effective billing system, all for a good price, your customers will be happy. These are all engineering based challenges. Trying to create a good experience in the content game is much more nuanced.

You do have the same IT and networking challenges, but then you have to create engaging content which appeals to the individual preferences of each customer. Not only does this mean good content, it means varied content. This is a creative challenge, as is the design work to create an attractive and functional interface. These different challenges are what the majority of the telcos are facing right now as they search for the converged business model.

Perhaps one of the reasons Sky is so successful at the content game is because it is picking its battles. Instead of trying to wow the world by creating expensive, and risky, original programming, the focus has been to create an aggregator platform. Sky has realised how it can add contribute to the value chain; offering OTTs a link to its 22 million customers. For the OTTs it now has a logical link to new customers through the Sky TV platform, while for customers content can be streamlined to a single viewing window. It’s a win-win situation, with Sky facilitating the value-exchange; nothing too clever, just contributing to the ecosystem with the assets it currently has not trying to steal market share and profits off established players.

As an content aggregator, Sky is starting to look like a very promising platform. It has a very comprehensive sports offering, buoyed by extending Premier League rights in UK to 2022 with more games and at a lower cost, it acts as the European distributor for HBO content through its Sky Atlantic channel, it produces its own content which is low-risk (panel shows such as League of Their Own), while partnerships with Netflix and Spotify will make the platform very attractive. Once you log-in to the Sky platform, you won’t have to go anywhere. This is a very attractive proposition to the customer.

The broadband offering is perfectly acceptable, your correspondent is a Now TV subscriber and is perfectly happy, and if it continues its early success on the mobile side, the convergence business model should be simple enough to achieve.

The content side of convergence is the difficult bit, now if it can nail the experience and customer service aspects of broadband and mobile, the UK could have a convergence heavy-weight lurking in the shadows.