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Sky to spend $1 billion on UK films by 2014

Sky is setting up a £600 million ($ 1 billion) investment pot for the UK film industry as part of an overall increase in commitment to original content. The fund, which will reach its target by 2014, is already funding two feature-length British films, the first of which will be screened in 2013.

The move reflects Sky’s conviction that investment in UK content pays, partly through the positive publicity, but chiefly because it generates sales and advertising both via its own channels, and through the UK’s other two main pay TV platforms, cable company Virgin Media and hybrid IPTV/DTT operator BT Vision. This conviction is not shared by those two operators, which have adopted a different business model focused on providing the best user experience for accessing a wide range of content, both linear and on-demand. Sky, though, has grand plans eventually to overtake the BBC as the country’s leading content originator.

Significantly, Sky, which has just over 10 million UK subscribers, is looking particularly to boost linear viewing with the intention of producing mostly family films for viewing in front of the big screen, rather than diverse content more likely to appeal on other screens. However, Jeremy Darroch, Sky’s Chief Executive, pointed out that Sky had also had growing success with original comedy and drama, which it would continue to produce.

The priority for filmmaking, though, will be projects for the whole family, with content matching the scale and quality of recent home-commissions such as Treasure Island, featuring stars including Elijah Wood and Eddie Izzard, and Neverland. These were screened by Sky as mini-series, and this raises an interesting point about theatrical release. In the past, Sky has been criticized for failing to invest enough in UK filmmaking, with the implication that this would involve producing content that would be shown first at the cinema in something akin to the current windowing system for Hollywood movies. But, Sky Movies director Ian Lewis has, not surprisingly perhaps, made it clear this is not going to happen.

However, Lewis has indicated that, given suitable distribution deals, it may be prepared to allow theatrical release to coincide with first showing on the TV via Sky Movies. Lewis emphasized, though, that the whole point of investing in film production from Sky’s perspective was to give its customers early access without having to wait several months for the TV window to open. Indeed, subscribers will be able to view the movies via Sky’s on demand services, as well as through the multiscreen Sky Go.

The current plan is for Sky to produce five or six UK made movies a year with an average budget around £5 million ($8 million) for each. Sky was also going to continue making documentaries and be prepared to pay for the best directors, such as Oscar-nominated Morgan Spurlock, who led Sky Atlantic’s Morgan Spurlock’s New Britannia.

It is not yet clear whether Sky’s other big European operations, notably Sky Deutschland, which has three million subscribers, and Sky Italia, with five million, will follow the UK lead by increasing investment in home produced films or other content. Sky Italia, which has a near monopoly of pay TV in the country, has been spending significantly on home content since 2003, when it announced it would spend around 22 million Euros per year in the Italian film industry, increased to 35 million Euros in 2007. This, according to Sky, has paid off by attracting customers, although in Italy, as in the UK, rights to top football matches have played a bigger part in the subscription growth. And now, investment looks like being choked off by a new proposal regulating the number of films that can be shown during the day, which would effectively remove some of Sky Italia’s film channels.

The German pay TV market is also unique, but in the different sense that its population has historically been reluctant to subscribe in the belief that content should be free. As a result, pay TV operators have struggled both to win subscribers and raise ARPU, and Sky Deutschland has yet to be profitable even though it came a little closer in 2011 when it reported a net loss of €140.4 million compared with €178.9 million in 2010. But, the Germans are also notorious for being unimpressed with the quality of their programming, leading Sky Deutschland and competitors such as Kabel Deutschland into the belief that people can be persuaded to pay for good-quality content. So far, though, Sky has taken the view that Germans are more interested in sport and imported movies rather than their own, which have tended to be aimed at niche audiences. It recently raised €300m in a financing round specifically to import content, having recently signed a film deal with Warner Brothers.

So, whether as content originator or exclusive rights holder, Sky in Europe plans to place content even more at the center of the stage than it has already.