Wednesday, November 17, 2004

Gnomic Triple Play?

I'm in blog slowdown mode, trying to complete our global monthly (zzz...), some slides for an upcoming conference, and a note on BSkyB all at once. The latter has me pretty excited, because I've decided to take some different angles on the story, and am coming up with some interesting things - I think. In doing the inevitable price/product comparison analysis, I went back to the Top Up TV site for the first time in a couple of weeks, to find that the company is now in a joint promotion with Tele2.

I knew that Top Up TV was already in a cross-promotion campaign with Screen Select (the UK's homegrown version of NetFlix, for those who don't know it), but this brings telephony into the mix. This gives Top Up TV viewers multichannel TV with a channel package that is not too far off basic cable packages in terms of channel popularity, plus near-VoD (albeit with a couple of days' delay in the post), and aggressively discounted calls to boot. Tele2 has a policy of waiting until the first service launched in a given market is profitable before launching new ones, but I can only assume that a move into low-cost broadband in the UK would see that service included in such cross-marketing efforts in future. Alternatively, Top Up TV could choose a different internet partner, though all the major names I can think of are conflicted on the voice/content side of things, as far as I can see.

This may sound like a crazy and disjointed triple play strategy on the surface, but in working on this report, I've been looking closely at UK household income/expenditure and demographics, and the more I learn, the more I think the guys at Top Up TV actually have come up with something really inventive and potentially very appealing to the large group of pay TV refuseniks who frankly don't have all that much money to spend. One figure I'm coming up with in my income/demographics research is that 56% of UK households have weekly income of GBP450 or less, versus average household weekly expenditure of GBP406. The 44% of households on the other side of the fence works out at around 10.6m, which incidentally is very near the number currently taking satellite or cable (10.4m).

Looking at how cable has punched above its weight in the TV market in the last few quarters, my working thesis is that the key differentiator against Sky in the long term is the ability to bundle. Sky has a superior TV product, hands down, but that's all it has at present, and may not be as important as it once was, all things considered. The voice product is not actively pushed, and there is no internet access strategy (that we know of). So what if DTT and some of the TV-over-DSL products in the pipeline can't match Sky in breadth or depth? For the segment of the market yet to be converted to either multichannel TV or broadband, this is likely to be of marginal importance. Of greater importance will be discounted bundled services.

The owner of my local corner shop in Southeast London (NTL territory) is an Indian man who works long hours and loves his television. Whenever I go in the shop, he is invariably watching Bollywood films or Indian soap operas. Recently I succumbed to my curiosity and asked what channel he was watching. “Sony TV Asia,” he replied. “Is that on Sky?” I asked. “No, NTL. I took the Asian channel package and they gave me free line rental on my phone.” This is something Sky is not equipped to do, barring a significant change in direction and some heavy additional investment, which the market may hate on top of everything else going on. Sky may be the best in its class, but as I'm writing this note, I'm really struggling with just how sustainable demand for its product is going to be in a changing media landscape.

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