Sky had a stunner last Friday when it announced great numbers, a new five year rugby deal and plans for some fancy new additions to its boxes. It also announced the launch of its much-discussed SVOD offering Neon, which is set to launch in December. Here’s what managing director Dave Joyce had to say about the strategy behind it.
Sky is an extremely popular service, with more than 50 percent of New Zealand homes paying handsomely to access its content. But streaming is gaining in popularity, especially among the younger demographic, many of whom aren't quite so keen on shelling out for the all-you-can-eat buffet option of a full Sky subscription. As such, Sky saw the need to cater to that market to ensure it remained successful and announced its intention to launch a Netflix-style subscription video on-demand offer. And that service has been christened Neon.
Managing director Dave Joyce says the feedback to the announcement of the new service and the impending launch has been "overwhelmingly positive" and people are looking forward to seeing the results come December.
"The whole idea behind this is that we’re targeting a different group of consumers," he says. And while he says it is still leveraging its parent company, which has 20 years plus experience in securing content, it is also maintaining its distance and trying to create an entirely new offer.
One major thing in its favour is access to HBO content like Game of Thrones and Girls. Joyce says first play will be on Sky's premium channel add-on Soho and then it will be picked up on Neon. He says there will also be a lot of exclusive and premiere content, some of which he says hasn’t been on any TV service in this market before.
Movies are also key point of difference, he says. And while overseas evidence points to movies being less popular than TV series when it comes to SVOD services, he says it’s a key part of selling the offer to consumers.
Joyce says Neon's other main selling point is its product features, particularly a bookmark function that allows viewers to return to shows from where they left it, even on a different device, and a higher refresh rate. At launch, it will be available on PC and Mac using an internet browser and on selected iPhones and iPads through a free Neon app. Viewers can also use Apple TV to stream to TV via Airplay or connect a laptop to a TV using an HDMI cable. It will also be available on Xbox 360 and selected Samsung Android tablets and phones as of next year.
Neon is charging $20 a month, $5 more than Lightbox, and there are no contracts or ads. So how big is New Zealand's streaming market?
Lightbox is thought to be aiming for 70,000 customers by 2015. Joyce couldn’t give specifics on Neon's goals, aside from saying it was hoping for “as many as we can get”. And as for how much it’s invested in the business, that’s also commercially sensitive. But he did say it was “plenty”.
"What we’ve invested is what was required to get a quality product," he says. "... I don’t know whether [streaming] is mainstream yet, but I don’t think it will be long before it is. There is a growing number of people who are interested in it and using it."
Generally speaking, the use and interest is coming from the under 35 market, he says, with some supplementing their free-to-air viewing with additional, cheaper subscriptions, whereas those over 35 are generally still quite content to watch in the traditional manner. Sky’s upcoming move into internet-delivered TV through its box upgrade will probably only speed that evolution up as its broad range of customers become more accustomed to watching content on-demand.
Sky has admitted there is a danger that customers with a full subscription could downgrade as a result of Neon. But as Sky’s head of comms Kirsty Way said earlier this year, that might have a silver lining.
"We expect this will be the case for some Sky customers. The good news is that those customers if they only want what is on the SVOD service will get better value and hopefully stay with us longer. That is a good result. They could go to a competitive service too so we’d rather fill that gap ... We’ve noticed that this type of service doesn’t seem to be popular at the detriment of pay television, rather it is attracting new customers or customers are taking both pay TV and SVOD."
HBO has recently announced it will sell online access to its content direct to consumers in an effort to better compete with Netflix. And Joyce says BSkyB is another example of a traditional pay TV operator trying to evolve its offering and target a younger market. But he says a lot of the innovation in this space is being driven by non-traditional companies like Netflix, Hulu and Amazon—and, in this market Quickflix, Ezyflix and Lightbox. Of those, Lightbox seems to have done the best in terms of securing good content (and it announced some more local content today), Quickflix has also recently added some local content to its offer and the free-to-air operators also have plenty of compelling content on their ondemand services. But Sky has a huge range of quality content at its disposal, with HBO being a big drawcard, and deep pockets (when asked if it planned to offer sport on Neon, Joyce said "not at this stage").
One of the things that has hampered the uptake of these SVOD services is hassle and problems with reliability. Premier League Pass struggled with technological glitches when it launched, Sky admitted its early streaming service groaned under the weight of high demand and Lightbox has also had its teething problems. Part of that can be placed at the feet of the ISPs, but Joyce thinks the arrival of fibre will help address some of those bandwidth issues and increase reliability.
As for the launch strategy, he says he can’t give too much away as it’s a very competitive market, but he’s under no illusions as to how hard it will be. As Sky's chief executive John Fellet says, buying content is easy. Making money out of it is the tough bit, something illustrated clearly by the struggles of TiVo, Igloo and other streaming services like Quickflix.
“We’ve got a big job to do around educating the market on what our point of difference is," Joyce says.
Speaking of Igloo, which Joyce ran, what does the arrival of Neon mean for that business? Sky initially forecasted the aim was to acquire approximately 50,000 subscribers, but this was later reduced to 30,000. And, according to a recent report, Igloo clocked in with just 8,760 paying subscribers, a number well below the 30,974 Igloo decoders that had been sold.
"At this stage we are still growing Igloo, and we're still focused on that segment of the traditional TV viewing market who, for whatever reason, are not interested in Sky," says Joyce. "Neon has quite a different target market."
Competition is generally good for consumers. And while Sky refutes the notion that it's never had any, most agree there’s more of it now than there ever has been. So would Neon have been launched if the other options weren't available? Has Sky's hand been forced?
“I don't think so," says Joyce. "It’s just part of the evolution of Sky. Sky has been super successful at doing what they’ve been doing, but they’ve realised the world is changing."