For some, one of the major reasons Sky has been so successful is because the game has been rigged in its favour. Australia’s Foxtel sits at about 30 percent penetration, but anti-siphoning rules in that country mean a certain amount of sport needs to be shown on free-to-air. In the UK, pay TV penetration was 54 percent in 2012, with BskyB owning 37 percent of that. But there are very few pay TV players around the world with as much dominance in the market as Sky in New Zealand.
“We’ve always had competition, but we’ve always won the battles,” says Fellet. “It’s a long-haul business. And the first ten years weren’t easy … The easiest part is buying the content. The tricky part is figuring out how to make enough money to pay for it.”
While free-to-air channels have a very different, ad-funded commercial model, Watson says Sky still competes with them for rights (in the case of Igloo, it works with TVNZ). TiVo also entered the market but quickly failed because, as Fellet says, “it got a silver medal in three different categories”. The Commerce Commission, which released its report into Sky last year, seems to agree that it faces competition, saying “there appeared to be sufficient content of all types available outside of Sky’s exclusive contracts to put together an appealing pay TV package. These contracts were similar in nature to other broadcaster contracts with content providers”. It did, however give Sky an official warning for its historical exclusive agreements with telcos that had the “purpose, effect, or likely effect of substantially lessening competition”.
“However, due to market developments, the key commitments Sky has with [retail service providers] are unlikely to continue to have the same effect. For example the new sports pay TV product from Coliseum and the recent exemption granted by Sky to Telecom to market this product [Vodafone renewed its deal with Sky, but Telecom pulled out to focus on its own IPTV product, which was originally launched as ShowMeTV but changed its name to Lightbox and is set to launch officially this week]”.
Fellet says there has never been more competition, whether from MyFreeview, free-to-air channels bidding for shows that would traditionally screen on pay-TV, new free-to-air channels like Sommet Sports and Choice TV, content offers from the big global tech companies or local over-the-top options like QuickFlix, EzyFlix or Spark. And that, he says, means there is more pressure on Sky to speed up its innovation to stay relevant.
“There are only two articles that ever appear in the newspaper: Sky is a monopoly and should be heavily regulated and Sky is yesterday’s technology and won’t be around a year from now,” says Fellet. “I think both are overstated and the truth lies somewhere in the middle.”
While Watson believes competition is great for expanding the market, he says it’s not always of benefit to consumers, pointing to a situation in Italy where one pay TV provider had rights for AC Milan’s home games, and another had the rights for its away games, which required fans to pay more to sign up to two companies if they wanted to watch all of them. Given the various technical issues originally faced by Premier League Pass, which won the rights to the English premier League off Sky last year, some would argue that shift has added cost and frustration to the lives of football fans, too.
It’s clear that Fellet and the team don’t believe the company gets its due when it comes to innovation. As he said in last year’s chief executive’s letter, “Sky is disruptive technology” and, over the years, he points to a number of successful innovations, many of which required massive capital investment.
“We did a UHF box in 1990. We launched our satellite box in 1997. Four or five years later, we launched MySky. Two or three years after that was MySky HD. You also have to upgrade the TV stations and develop new boxes and new technology like SkyGo. BskyB has 20 million subscribers to spread that out. We only have 870,000.”