Sky's no-dish offer rattles SES, Eutelsat investors
January 26, 2017
PARIS — One of Europe’s biggest TV broadcasters, Sky PLC, on Jan. 26 shook satellite markets by announcing that it would offer, for the first time, a satellite-free television service in hopes of capturing customers who can’t or won’t install satellite dishes.
The announcement caused the shares of Europe’s two biggest satellite fleet operators, SES and Eutelsat, to fall by 5 percent, with SES shares at one point down 8 percent before stabilizing later in the day.
The obvious concern: How should the satellite sector view the decision by Sky, formerly all-satellite and then a mix of satellite and terrestrial, to introduce a no-satellite offer?
Investment banks with “Buy” recommendations on satellite companies issued opinions reminding investors that satellite television contracts were of long duration, that Sky could not simply end its satellite business even if it wanted to, and that Western Europe has long been viewed as a mature, low-growth satellite market.
Data services and emerging markets is where satellite operator growth has been for a couple of years now.
Even so, Western Europe has been the most lucrative in the world in terms of what broadcasters pay per megahertz of satellite bandwidth, and European television still accounts for a large share of SES and Eutelsat revenue. Sky remains one of SES’s largest single customers.
6 million European homes added to Sky’s addressable market
Sky said 600,000 British homes with no satellite connection have already signed on to Sky Q and that, in Europe, 6 million no-satellite homes would now be added to Sky Q’s addressable market. Sky Q will be launched at Sky’s divisions in Germany, Italy and Austria within a year.
For Sky, dropping satellites has clear cost advantages. Installation and overall subscriber acquisition costs go down, and IPTV customers appear to be watching more television and more likely to have multiple screens in their homes.
“Preferences are changing,” Sky Chief Executive Jeremy Darroch said in an investor presentation. “Combining a digital-only service with something like Sky without the need for a satellite dish is obviously got the potential to deliver an even more efficient and cost-effective business.”
He said subscriber acquisition cost of an IPTV customer was about 150 British pounds ($188) less than a new satellite customer.
“The lifetime cost of managing that service becomes a lot cheaper,” Darroch said. “That will directly speak to about a couple of million homes in the UK where we know it’s very difficult to get a satellite to, or where people really don’t want a dish — and 6 million broadly over Europe.”
Darroch said he expected a customer would need broadband links capable of around 4 mbps to take full advantage of the Sky Q offer. “It’s not overly high,” he said.
Sky Chief Financial Officer Andrew Griffith said many of prospective customers for Sky Q are in urban areas, in apartment complexes where satellite dishes may be difficult to install and where high-speed broadband is most likely to be in place. “I don’t think that will be a gating factor,” Griffith said of the 4 megabit-per-second requirement.
Any migration to non-satellite will take years
So is this the beginning of a long downward slope in Sky’s use satellite?
Not immediately, although Darroch said: “Over a long period of time, I think you’ll gradually see more of that.
“It’s fair to say that streaming delivery on the whole is more appealing to younger people than it is to older people.
“[But] it’s still worth noting that after all these years we’ve got a decent chunk of [digital satellite] customers who only take the basic satellite service. And they are very happy, very stable. These things take a long time to play out.
“What are the big trends we see? How do we build exposure early to those trends? The journey to get Sky delivered only over broadband started in 2005, with the Sky Player, with a restricted service. And 10-11 years on, it ends up with something like Sky Q.”
Peter B. de Selding