It’s a new year and a renewed focus on saving a bit of money – Xmas has got to be paid for somehow! My favorite exercise is to look down the dauntingly long list of monthly direct debits and pick out a few notable offenders for some new year defenestration. What’s striking is the disconnect between most ‘normal bills’ which have crept up continuously over the last few years and discretionary products where prices have (generally) come down. The obvious example of the former are utility bills which seem to keep continuously edging ever higher but a new and notable offender on this score is Sky TV. As a shareholder in this broadcasting and broadband giant, I shouldn’t really complain – fingers crossed that the regulators let the takeover by 20th Century Fox through, thus delivering the satellite champ into the waiting hands of Disney. If the deal is nixed, by contrast, I foresee a rather more dismal future for 2018 is the year I chop my Sky TV monthly subscription. And having looked around the various bulletin boards online, I’m very far from being the only one contemplating this bold move.
I’m not a big sports or movie viewer, so I suspect I’m fairly atypical in paying £32 a month for what is in effect a series of largely free to air services plus Sky Atlantic (excellent though that channel is). Most colleagues I know who use Sky pay closer to £60 a month, and only occasionally watch a sports fixture or film. Crucially this monthly bill has been edging up for ages and now represents poor value in my mind.
The alternative for satellite owners is obvious – switch to Freesat (or Youview if you have decent broadband). Annual cost beyond the new equipment – zero. Based on my research the equipment costs around £190 per annum, which means that I’ll be at breakeven after just six months. Ah but what about Sky Atlantic and all those wonderful HBO series – the solution is to sign up to Now Tv for three months a year and binge watch, after having paid £8 a month. Credit to Sky for launching this service – it clearly knows the way the tide is turning. As for movies I can subscribe to the likes of Netflix and Amazon and watch their free films or pay per movie rent from the online services. I’m no expert on sports but I guess that you’ll probably be yoked to either Sky or BT. Everyone else must be doing the same maths I’m doing – go free and cut the cord to Sky. Granted, the Sky Plus box is a wonderful box of technology but is it really worth paying just under £400 a year for? In my case, the answer is no.
In business terms, Sky is facing slow death by a thousand cancellations which has also hit the US cable giants. They benefitted from the first heady phase of massive choice but have continuously upped their rates to the point that churn rates are now increasing exponentially. And then came the disruptors such as Netflix, Amazon and Google. Suddenly channels could be delivered as a service online. Sky, I think, is heading into this netherworld where the high churn rates force the network to focus on cashflows and keep coming up with new product ideas. It also forces Sky to behave more and more like an electronic utility by offering the full range of products such as broadband and mobiles – with BT its obvious direct enemy along with Virgin.
For shareholders, I think the long term impact could be huge – with the premium debunked. Thus, the deal has to got to be waved through by the regulators – and Disney needs to be the eventual owner. The next $64 billion question is what next for Netflix? Will it go down the same road as Sky? In essence, Netflix has two choices. The first is to milk the cashcow of subscribers by continuously raising rates, first beyond £10 and then £15 a month. But again, I see a problem a la Sky. Consumers will replicate my exercise and then look at what they pay and start revolting – and switching. My own sense is that Netflix will face a crunch at between £10 and £15 a month. As a small example I currently subscribe to the family version of Spotify which costs £15.99 a month – the absolute maximum I would pay. anything above this level strikes me as expensive.
The alternative for Netflix is to become a global broadcasting brand – joining a tiny elite list of broadcasters such as HBO and the BBC. In this scenario Netflix sticks with rates between £8 and £12 a month but then adds countless tens of millions of new subscribers from the emerging world – and hard to reach developed world markets. But as with Apple and its premium phones, the tough choice will be to how to market a low cost option that costs much less than 320 a month – can the channel come up with a discount price point that satisfies subscribers in India but doesn’t sully the brand? The prize though is huge – Netflix becomes the dominant global paid for broadcasting brand. Unless of course Disney via Sky gets there first?