Sky's the limit

A couple of notable news items today around the UK satellite TV provider BSkyB. In the morning, the Guardian ran a story that said Sky was in talks with Microsoft to offer its proposed DTT service over its new PC-based TV platform. The DTT service that Sky hopes to launch, pending approval from regulator Ofcom, will see the provider use MPEG4 technology to put four pay-TV channels into the spectrum currently being used by Sky to offer three free channels over the DTT service, which is sold as Freeview in the UK.

If it happens, it will be an interesting step in the convergence of media in the UK. Although Sky, which is 39.1% owned by News Corp., bought a broadband service provider a couple of years back, it is using this asset in its consumer business primarily as a triple play bundle. Putting its channels on Microsoft's Windows Media Centre will be the first time that the provider actually attempts to offer its services to the PC.

It also builds on the announcement Sky made last week that it would provide its premium channels to Tiscali for its IPTV service.

Presumably both of these moves are being done for Sky to test the broadband waters rather than really hope for big paybacks for the services. Indeed, if reports from moneysupermarket are to be believed, there's such a speed gap between what consumers are being promised and what they are getting that it may be a while because PC/broadband-based television services really take off in this country.

The other Sky story is that this week it launched a counter attack in its ongoing fight with cable provider Virgin Media over whether the latter was right to claim that Sky was really abusing its market position in negotiating over channels (or not negotiating, as the case may be). If the UK courts rule in Sky's favour after all, it will likely have a negative impact on Virgin Media's bargaining position in the future, not just over channels but for the price at which it potentially gets sold.

Interactive TV: 1; Online TV: 0

Went to two conferences this week, FT Mobile Media and Online TV and Video, organised by Informa.

Ironically, one message that came out of the Online TV conference was that, in fact, computers and broadband still don't have a patch on traditional TVs when it comes to viewer numbers for video.

Channel 4, which launched its 4OD on-demand service at the end of 2006, has been running it simultaneously as a digital interactive service with pay-TV providers (Virgin Media, Homechoice and BT Vision), and as a PC-based service accessed via broadband. 4OD is a mixture of catch-up TV with a selection of archived programmes and films.

"4OD is overwhelmingly viewed more on TVs than it is on PCs," said Cosmo Lush, head of product development, told me. "I would say that pay-TV viewers outnumber PC viewers at a ratio of four to one."

He did point out that the PC user base has doubled since Channel 4 added extra free content earlier this year--but that potentially means that only one in eight people were using the PC service before.

One issue might be the hurdle of getting people to download a client onto their computers just to be able to use the service. (Another exec I met a few weeks ago from Channel 4 noted that while more men than women downloaded the client, women tended to use it more regularly-- meaning that among those that bother to download it, some never actually register and use it.)

But Lush at Channel 4 said the PC version of the service "will continue to evolve."

They have good reasons to keep pushing it, even if it's much less popular than the TV version. Since Channel 4 can offer the PC version direct to consumers without the need for partnerships with pay-TV providers, it gives them potentially a much better return on any revenues they make from it (from advertising or subs for premium content).

And it's of course so much easier to promote it and get people to click straight into the service direct from other places online. (Lush pointed out that search advertising, a la Google and Yahoo, has been an excellent investment for them so far.)

That's not to say that there's not room for developments of the TV version of 4OD. Channel 4 has yet to sign up the U.K. pay-TV market leader, BSkyB, to the service.

Hello again, and a week in review

Apologies for the extended neglect of this blog. It will start to get updated much more regularly from now on...

The following article was published last Friday on TC+M's web site, which you can access free of charge for the latest media news: http://www.totalcontentandmedia.com

The Cable Cabal

As the dominant pay-TV service in a market of committed couch potatoes, cable has had a good ride in the U.S. so far.

This week, the feelgood factor continued as media figures extolled the virtues of cable at The Cable Show, the annual confab for the National Cable and Telecommunications Association (NCTA), in Las Vegas. Jeff Bewkes, the COO of Time Warner, said he believed that cable could potentially rival the Internet in terms of its flexibility of use and attractiveness to advertising.

The investments the cable operators have made in innovation have paid off so far: Comcast, Time Warner Cable and Cablevision have all posted double-digit revenue growth as a result of their triple-play service offerings.

Now some cable providers are getting even more bullish and suggesting even bolder offerings, such as screening films as they are premiered on big screens.

Outside the Vegas desert, there are clouds, of course.

In addition to heavy investment from IPTV competitors like Verizon and AT&T, U.S. cableco's are bracing themselves for regulation that could threaten their pole position.

In the name of letting parents opt out of violence-peddling channels, the FCC is considering forcing companies to liberalise how they offer channels, from their current package structure to an a la carte selection. This would hit margins hard for cable operators.

They may also be forced to 'unlock' their digital set-top boxes so that people potentially can use them to switch from one provider to another. But as yet neither of these issues is squeezing margins—and the powerful cable lobbies will make sure that it stays this way.

Further afield, the message of strength coming out of the U.S. this week was countered by a more sombre picture in the U.K, where Virgin Media reported an operating loss of £15.3m for the quarter that ended 31 March, compared to a profit of £9.2m for the quarter before.

Virgin Media is blaming satellite competitor BSkyB. The breakdown in negotiations to carry Sky-owned channels on Virgin Media's cable service has played a role particularly in terms of customer acquisitions, said chief executive Steve Burch. These fell by 11.9%, their lowest level for a year, with subscribers to its cable TV and broadband services falling by 46,900 over the quarter. A year earlier subscribers had grown by 28,500.

But another issue for U.K. pay-TV providers is what the addressable market is for new customers really is.

When BT launched IPTV at the end of 2006, it wanted to target people not yet receiving any kind of premium TV service. This is actually a big number—at the time of the BT Vision launch, it was some 14 million homes (compared to 11 million already getting pay-TV services). But so far BT has only reported some 5,000 subscribers, and Virgin Media too has shown some difficulty in reaching what Gavin Patterson, the consumer products MD for BT Vision, calls 'the refuseniks.' BT incidentally kicked off a £1 million ad campaign this week; we'll see where that takes them.

The silver lining for Virgin Media has been in the area of triple play. Currently 42.9% of its subscribers take television, broadband and phone services in combined packages, compared with 34.9% in the year earlier period. This however is still not offsetting other losses as it has in the U.S. market.

One example of how to cope with the loss of select content on your cable network might be found in Germany. Premiere, the largest cable provider in the country, had some good news this week as it swung back to profit in the first quarter (which ended 31 March), posting net income of €4.5m compared to a loss of €18.3m in the same quarter a year ago.

While revenues decreased to €224.3 million versus €273.3 million a year ago, largely on a reduced customer ARPU (€261 from €308), Premiere's biggest achievements were cuts in its operating costs by some 29% over the same period the year before; and a rise in customer acquisition rate over the fourth quarter of 2006: 50,582 versus 36,058. The total number of customers to date is 3.46 million.

Premiere is still adjusting to losing exclusive rights to show the highly popular Bundesliga football league fixtures, which went to its competitor arena, owned by Unity Media.

Premiere has a resale deal to continue providing coverage of the games, but there are still questions in the air about how this will impact the company. Currently the marketing around those channels is being investigated by Germany's Cartel office, and the outcome of that may affect Premiere's full-year forecasts.

Yet Premiere is not hanging its star on the outcome of the Bundesliga decision, or even on its successful cost cutting. Later this year, it's launching a new pay-TV satellite package. Using a new wholesale service from SES, it will play on the long-tail concept and offer a variety smaller channels that have not yet been seen in the German market. The name for the service? Premiere Sky.