UK pay-TV war heats up

The UK’s pay-TV operators are squaring up for battle as they compete with words, prices and OTT offerings as well as content for a fixed audience being squeezed by the expansion of Free-To-Air (FTA) programming.

With the prospect of an overall increase in pay-TV viewing diminishing in the face of an onslaught from the FTA sector, operators are focusing more on those premium subscribers drawn to pay TV by high-value content, primarily recent movie blockbusters and the most popular sports. The focal point of battle is around English Premier League (EPL) football where BSkyB and BT have fallen out, setting the stage for a price war as well as legal arguments over mutual airing of adverts for the other’s sports channels, with regulator Ofcom caught in the cross fire.

Although BT lies a poor third in the UK pay-TV market with around 750,000 subscribers, it has deep pockets and has spent heavily on content rights as well as expanding its fiber infrastructure for IPTV delivery. BT made a serious hole in Sky’s stranglehold over live coverage of EPL by acquiring the rights to 38 matches per year for the three seasons 2013/2014 to 2015/2016, leaving Sky with the remaining 116 of the 154 game annual package. BT has also secured rights to a number of international competitions as well as acquiring the former ESPN UK, which held rights to the FA Cup, the English knock-out football competition. BT has also acquired rights for some other premium sports such as rugby.

But, the intensity of competition has prevented the two operators from reaching a mutual wholesale deal under which each makes their sports content available to the other, raising the spectre of a price war. BT claimed that it was willing to share its content with Sky, but that the latter had declined to reciprocate on acceptable terms. However, BSkyB insisted that BT had been unwilling to share its own content. Of course, money lies at the heart of this dispute, with both parties clearly happy to share their content at the right price, since that is part of the reason for owning premium content rights in the first place.

At the same time, the two are also clashing over mutual advertising, with BT complaining to Ofcom over Sky’s refusal to air adverts for its two sports channels, due to launch in July. Given Sky’s position as the number one pay-TV operator with over 10 million subscribers, BT considered this to be a significant handicap and claimed Sky was showing “undue discrimination” by refusing to air the ads.

For BT, acquiring premium is part of a three-pronged strategy for gaining a significant number of customers from its two main rivals — BSkyB (which is the UK brand for Sky) and cable operator Virgin Media. The other two, outlined recently by director of TV for BT Retail Alex Green, are national fiber broadband roll out to deliver multiple HD channels, and alignment of its service with the UK’s hybrid connected TV platform YouView. The latter is backed by BT along with ISP TalkTalk, which provides a rival pay TV service currently number four in the country with around 200,000 customers, along with several broadcasters including the BBC and ITV. It comprises a hybrid set top box, which can be purchased independently to provide access to catch up content, or as part of the pay TV service from BT or TalkTalk.

Currently, BT’s pay-TV service is still hybrid, relying on digital terrestrial to deliver linear TV channels via a Freeview decoder while only on-demand content comes over IPTV. But, the plan is to migrate the whole lot to its fixed line infrastructure through the YouView box as its fiber network expands, perhaps using VDSL2 in some cases to reach homes just a short distance from the nearest DSLAM in a street cabinet, as this is already deployed for some of the operator’s broadband customers.

The other area of growing competition revolves around on demand and TV Everywhere, with Sky having made up a lot of ground, according to UK media consultancy firm Decipher. According to the firm’s March 2013 edition of its VOD Report, Sky has responded over the last six months to the success of Virgin Media, the UK’s number two pay-TV operator with 3.7 million TV customers, as well as YouView and FreeSat along with a number of other non-broadcast devices capable of delivering content, such as smart TVs and Microsoft’s X-box gaming console.

Given Virgin Media’s position as a pure play distributor not competing over content rights, it was essential to be at the cutting edge in content access, search and discovery, which it has striven for via its TiVo hybrid platform, while moving to expand beyond its cable footprint via OTT. But according to Decipher, Sky has now succeeded in developing the most comprehensive catch-up service in the UK, measured both by number of channels and total unique assets. Furthermore, while Netflix offers the greatest quantity of movies and also TV shows on demand, with Virgin Media in second place, Sky has more up-to-date and higher-value material, including recent blockbusters in the early release window that it has negotiated unique UK rights to with the leading studios, on top of being the leading premium sports provider.

Sky, in common with the pay-TV operators, is also under strong attack from the FTA sector. This includes YouView providing access to leading BBC and ITV programming, as well as Freeview DTT and also Freesat FTA over satellite. Freesat has just announced it has added about 150,000 homes in the last year and 29,000 in the first quarter of 2013, making it the UK’s fastest growing established TV platform, bringing its total to 1.7 million.

Freesat claims that 51 percent of the homes that joined 2012-13 came from pay TV operators, mostly from Sky. Equally worrying for all the pay-TV operators is that Freesat’s research has indicated a quarter of homes were considering changing TV service provider in 2013, with 60 percent of these motivated by the desire to save money.

So, despite still being strong on content Sky’s UK dominance is under threat from two equally aggressive quarters — BT on the pay-TV side and the FTA sector encouraged by the broadcasters to expand its market share to boost advertising revenue as well as save money for consumers.