Home Analysis Netflix comes to Sky inside a first-of-its-kind combined subscription bundle

Netflix comes to Sky inside a first-of-its-kind combined subscription bundle

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Sky and Netflix have signed a Europe-wide deal to onboard the Netflix app onto Sky Q set-top boxes. Differentiating this deal from others between Pay TV operators and the SVOD giant, Netflix will be bundled into a new entertainment subscription pack that combines content from both companies. Netflix will therefore become part of the Sky bill (for customers who want integrated billing). Sky points out that this is a first-of-its-kind partnership. Other Pay TV platforms add Netflix to the operator bill, like BT in the UK, but as a standalone additional item. Across most of the Pay TV market, Netflix is integrated at a technical level but consumers continue their billing relationship with Netflix. In this latest deal, existing Netflix customers can migrate their account to the new Sky TV bundle or sign into Netflix content with their existing account details.

Sky says the new Sky-plus-Netflix subscription pack will be attractively priced, though pricing details will follow later. The deliberate bundling of the Sky and Netflix content into a combined entertainment pack (rather than making Netflix available in standalone form) is intriguing – suggesting a few possibilities (that we can think of):

  • Sky wants to make it clear that Netflix is ‘just’ another content provider like HBO, Showtime, Disney and others, creating the mindset that Netflix is an integral part of the modern Pay TV experience and not a separate one.
  • The bundle will ensure customers cannot downsize or ditch Sky content and replace it with Netflix instead, thus protecting both revenue and also other channels in the bouquet. Currently, for £20 a month, Sky customers get the new Sky Entertainment pack that contains a vast volume of subscription TV, but then add more focused content like Cinema for £10, Sports for £18, and Kids for £5. Maybe Netflix will only be available with Cinema as well, for example?
  • Maybe there will be some discounting if you take the bundle of Sky and Netflix content – compared to if you had previously watched the same Sky content on the Sky platform, and Netflix on a Smart TV or games console. It is debatable whether you need to discount to get someone to take Netflix, but the point of discounting would be to make the modern all-inclusive Pay TV offer, covering the best of free-to-air, ‘traditional’ subscription TV and SVOD, a more attractive proposition than watching TV and SVOD in different places. Sky is an innovator – this seems like a potential future marketing innovation and if it came from anyone, our money would be on it being from Sky first. Meanwhile Netflix needs growth, as analysts are often telling us. Being on the Sky Q platform will help drive growth for Netflix. A discount bundle could be a win-win.

The Sky-Netflix deal only covers the Sky Q platform, Sky’s latest offering, and not Sky+ set-top boxes/DVRs. The agreement does not include the Sky Q app. The new Sky-with-Netflix subscription pack will launch in the UK and Ireland this year and then on Sky Q platforms in Germany, Austria and Italy later.

Notably, this agreement extends to Sky’s contract-free streaming services (Pay Lite/Skinny bundle offers) across Europe as well, which means NOW TV in the UK and Ireland, Sky Ticket in Germany and Austria, and NOW TV in Italy. As with the STB onboarding, the integration starts in the UK and Ireland. Netflix will appear as a standalone app on devices that carry the Sky streaming services.

The appearance of Netflix on NOW TV (UK/Ireland and Italy) and Sky Ticket is significant in its own right. When NOW TV launched in the UK it was initially viewed as a Netflix killer – an attempt by Sky to make its Pay TV content the go-to place for multiscreen viewers, keeping them away from SVOD. NOW TV was initially focused on cinema, which probably gave that impression, but the service quickly expanded to include general entertainment and sport and it became obvious that it was a new form of general Pay TV package – and an attempt to build a new market among a distinct consumer segment – rather than merely a reactive defensive tactic.

The appearance of Netflix as an app on NOW TV devices will be welcomed by consumers who use both services. It also suggests that Sky is sufficiently happy with its own position in the streaming universe that it can accommodate Netflix alongside its own content on tablets and smartphones and low-cost streamer boxes, and not just on its all-powerful Sky Q platform. (Either that or they hated the idea but Netflix insisted upon it as part of a wider deal, which seems less likely, as Sky is big enough to say ‘no’.)

The combination of Sky-and-Netflix on the ‘traditional’ Pay TV platform (closely bundled) and Sky-with-Netflix on NOW TV streamer devices does point to more than a short-term tactical move by both parties. It suggests that Netflix is now viewed as a premium content provider and not a platform competitor (the same reasoning that led to the Liberty Global/Netflix deal, along with the realisation, backed by lots of analyst research, that Pay TV homes were not cutting cords to watch Netflix but taking both services).

As with other onboarding partnerships (like the Europe-wide deal between Liberty Global and Netflix), the SVOD service will be integrated into the Pay TV user interface. Sky customers will be able to access Netflix content in the Sky Q menu and find it via search and voice search.

Toby Holleran, Senior Analyst at the research/analyst firm Ampere Analysis, says bundling of services seems to be somewhat in Sky’s MO (modus operandi), given the sports partnership with BT that it announced in December, which will see BT Sport available as part of a Sky Sports package. “This feels no different, with Netflix essentially being positioned as a premium channel.”

Ampere Analysis has studied consumers who subscribe to both Netflix and Sky and their motivations for taking a TV service. The most popular reasons for subscribing to a service are TV show availability, then price, then availability of sports content followed closely by bundling. Almost 15% of UK respondents listed bundling as a primary motivation for taking a TV service.

Holleran thinks the inclusion of Netflix into a bundle with both Sky and BT Sport could meet the content needs of the vast majority of consumers within a single service and interface. Amazon’s exclusive content would be the only missing piece of the jigsaw.  “On a title basis, the inclusion of Netflix would complement the existing NOW TV/Sky libraries well, as our data suggests only around 3% of the titles available on Netflix are also available on NOW TV. UK consumers who subscribe to both would have access to almost 8,000 unique titles.”

Ampere Analysis views a bundled discount as a possibility. “Pricing could also prove an attractive motivator. If Sky’s Netflix bundle works out cheaper than taking the services individually, this could encourage those who do not currently take one of the two services to double-up,” says Holleran.

The analyst firm also thinks a Sky/Netflix package bundle could help reduce churn for both parties. “The inclusion of Netflix – which has the highest net promoter score of any service in our latest consumer wave [Ampere’s regular survey/study] – could discourage those with the bundle and who may become disenchanted with their Sky service from churning,” Holleran suggests.

They will stay because of convenience issues. “Additionally, this could tie subscribers into a much longer contract than they would have with Netflix – which could prove particularly beneficial for Netflix.”

Holleran also thinks the inclusion of Netflix in NOW TV devices will increase their perceived value, as they currently lack both Netflix and Amazon. This will be true especially for consumers who do not have a Smart TV.

In a statement, Sky says the agreement will give customers an even broader and better range of content, therefore adding more value into a Sky subscription. Jeremy Darroch, Group Chief Executive at the company, adds: “This will enable Sky customers to access even more of the best entertainment delivered over the best product platform. By placing Sky and Netflix content side-by-side, along with programmes from the likes of HBO, Showtime, Fox and Disney, we are making the entertainment experience even easier and simpler for our customers.”

Reed Hastings, Chief Executive at Netflix, comments: “We are delighted to partner with Sky to bring the latest technologies and great stories under the same roof.”

Paolo Pescatore, VP, Multiplay and Media at the analyst firm CCS Insight, gives his analysis. “This is huge. Sky has been reluctant to forge a deal with Netflix, but you cannot ignore the phenomenal growth Netflix has had in a short period of time. More importantly, it reinforces Sky as an aggregator of the content that people want to watch on the Sky Q platform.

“For Netflix, this is a superb tie-up that further increases its broad appeal among families. It is also a reflection of the changing landscape and the need for players to be smarter and work together rather than compete with each other. It is inevitable that both parties have made concessions in order for this long anticipated deal to happen.”

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