Home Analysis Sky confirms commitment to low-ARPU and cord-never market with NOW TV triple-play

Sky confirms commitment to low-ARPU and cord-never market with NOW TV triple-play

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Sky in the UK confirmed two things with its recent launch of the NOW TV Combo offer, which provides a hybrid DTT/OTT set-top box, broadband and landline telephone services in a no-contract triple-play offer. First, NOW TV has a life of its own beyond being the Pay Lite option for a traditional Pay TV operator. This takes the NOW TV brand to another place – less of an OTT television service and more of a service provider with a lower cost television option (which you can still take on its own). In the UK, TalkTalk and, to a lesser extent, BT have traditionally offered the lower-cost Pay TV options wrapped up with broadband and telephony (although with typical contract lengths). The NOW TV Combo offer appears to position Sky into that marketplace.

The second obvious point is Sky’s commitment to what you might call the cord-never and the cord-cutter market – the lower ARPU, pay-shy consumers who do have money for premium entertainment but are not willing to spend £30 or £50 a month on it. When Sky launched NOW TV in 2012 it was initially viewed as an effort to keep Netflix at bay, but was really more of an acknowledgement that there was money still on the table in UK homes for premium entertainment (partly due to the demise of DVD rental) and that Sky could take some of this rather than leave it all to SVOD providers. NOW TV movies and the general entertainment package would probably have achieved this objective. The availability of Sky’s premium sports channels on NOW TV confirmed that there was an opportunity to take revenue out of this lower-ARPU market that nobody else was extracting.

Providing these lighter Pay TV users with a triple-play offer seems to confirm that Sky sees largely separate and parallel paths for the lower-ARPU market served via NOW TV and the mid- and higher-ARPU markets it targets (the latter through its ever more sophisticated full Pay TV offer, which now includes the impressive Sky Q – see previous story).

The Combo bundle confirms – if there was any doubt left – that NOW TV is not a service that exists to tempt Pay Lite users (including during an era of relative austerity) and migrate them to full Pay TV on the way to a full Pay TV with broadband/phone bundle. It is not there just to catch the subscribers who churn out of the full Pay TV offer, with the ambition of easing them back into that full Pay TV service later. Sky has now given everyone inside NOW TV a path to their triple-play whilst staying on that lower-cost (OTT) television package. So at an obvious level, homes that want digital terrestrial broadcast TV (Freeview) topped up with some lower-cost OTT could take NOW TV television and perhaps decide to take their broadband and voice with Sky (branded as NOW TV), too.

With NOW TV Combo you have to take one of the television pass options (bundles) from a choice of Kids (£2.99 per month), Entertainment (£6.99), Cinema (£9.99) or Sports (£33.99). Broadband options start at £8 per month for up to 21 Mbps and rise to £18 (up to 40 Mbps) and £26 (up to 80 Mbps). The default phone option is free, where you pay for each call, or you can have evening and weekend calls included for £4 a month or all calls included for £8 per month.

So in a simple example, you can take Sky Cinema (movies) and entertainment with 21 Mbps broadband and a £4 phone package that includes evening and weekend calls, and the cost per month will be £46.97 once introductory offers end (you get £5 off for the first year). As with most broadband providers, the line rental (at £17.99) is what puts the price up. There is a broadband set-up fee of £40 if you want the ‘no contract – cancel anytime’ option for the broadband. Combo customers can still buy day passes and week passes – so you could take your Combo bundle with the Entertainment package on a monthly basis but occasionally use a Sky Sports Day Pass (£6.99 a day) or a Sky Sports Week Pass (at £10.99).

NOW TV Combo has another important development, relating specifically to the television service. The new NOW TV Smart Box (developed with Roku) is a hybrid device that includes the usual IP input for streaming video but also a digital terrestrial tuner so it can receive the Freeview service. Freeview is the primary free-to-air package in the UK. Until now the NOW TV boxes have been what you might call supplementary devices, since many users would be watching Freeview (or Freesat) for their broadcast TV and then switching HDMI inputs to turn their attention to the NOW TV box (which includes various broadcaster catch-up services and apps alongside the Sky-originated bundles).

When the NOW TV Smart Box hits the streets (this month), there will be no reason to switch HDMI inputs as the Freeview service and NOW TV service are contained in the same device. You can buy the NOW TV Smart Box outside of the triple-play offer; it has a standalone price of £39.99. The existing NOW TV streamer boxes will remain on sale. There is another notable improvement to the user experience, thanks to a live-pause feature that will hold the programming for up to 30 minutes. This applies to both the broadcast Freeview channels (received via the DTT tuner) and the live streamed pay channels.

The hybrid box delivers nearly 100 live channels in total (60 free-to-air and 35 streamed pay channels if you count everything available from the four different NOW TV passes). Fifteen of the free-to-air channels are in HD, available in 1080p. The NOW TV channels are streamed in 720p, which Sky believes offers a high enough quality for customers.

Gidon Katz, Managing Director of NOW TV, says the company is pushing the boundaries with its Combo offering, emphasizing that it is the UK’s first contract-free triple-play bundle. “We know people want the freedom and control of a ‘no-strings [attached]’ relationship when it comes to choosing their TV, broadband and call package, so the NOW TV Combo is the product and service they deserve.”

Jonathan Broughton, Senior Analyst, Television Media at IHS Technology, reckons Sky and NOW TV have thrown down the gauntlet to online video providers and low cost operator bundles alike with the new offer. He comments: “The addition of fixed line products to the NOW TV offer furthers the segregation between it and the single VOD catalogue design of rival services from Netflix and Amazon.

“NOW TV is even more convenient for consumers looking to manage their entertainment needs easily with a single contract. Monthly contracts to both broadband and telephony add a new dimension to short contract service hopping.”

You can read Broughton’s analysis in full, here. He believes the addition of the terrestrial receiver to the streaming box moves the offer from ‘YouView complementary’ to one that directly challenges bundles from TalkTalk and BT. “Gaining access to the full range of products in this market subset makes sense, as so many of these subscribers take additional SVOD services. It is these subscribers that are likely to be most swayed, taking advantage of the savings offered by the bigger bundles, and are likely to tie themselves into 12 month contracts.”

Broughton believes Sky has created both an attractive consumer proposition which could draw consumers away from rival services, and addressed the low ARPUs which plague online TV services.

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