Don't be scared of Sky

Now's the time to ground the high-flyer

I want my free TV

BSkyB as a company is a fat, bloated corporate monster stuffed to the neck with middle management, internal squabbling and mediocre creativity - micromanaged directly by the head honcho. They have shareholders to pacify, and angry vocal ones at that. Smaller companies may not have the size and resources Sky has, but they do have agility and can focus on niche markets Sky could never hope to match. The bigger guys can't release anything else than generalised mass-market, nor can they afford to experiment.

The question for Sky shareholders is exactly how many battles the company can fight on how many fronts. No-one's resources are infinite, and history has shown that the jack of all trades eventually collapses when the load becomes too much and the market can't sustain its ambitions. What used to be a fairly simple proposition with some masterstrokes of genius (e.g. giving away satellite dishes) is now a sprawling mass of convoluted services that are competing with stronger adversaries in their respective markets. Sky's arrogance will almost certainly be its undoing. This year will see the advent of high-definition video (HDTV), mobile TV, IPTV, Video On-Demand (VoD), video download services, high-speed broadband, and many other technologies. Sky has been desperate to fight them all, and time will tell what the damage has been. It is not fighting the old enemy (NTL and Telewest) any more. This isn't a case of releasing a silver bullet like Sky+.

The problem with fighting multiple battles on different fronts is that it can lead to being quartered, in the medieval sense. When you grow or expand, you take a brave step away from your core competencies. You are drawn out into unfamiliar ground where the chance of you making mistakes is very high, and very costly. Your competitors draw you to the battle on their home ground, rather than follow your lead or defend against your innovation. You are vulnerable through the change.

And that vulnerability is beginning to show. Churn (cancellation) levels are higher than ever, and the cynical majority in the industry reportedly believe the new portfolio of services is a cunning ruse to improve its subscriber statistics as it seems to have reached a difficult commercial plateau in customer acquisition. When you phone Sky to announce your intention to leave, the company's desperate customer support staff will do virtually anything to keep you (word to the wise: if you want a few months subscription free, or to bump up your package, call them up and tell them you're getting Freeview or NTL instead). The UK isn't quite the same dynamic as the US, with its hundreds of millions of households. The reasons for the slow down are simple - it costs too much, the content is getting worse by the day, and you can get better elsewhere.

Grey clouds

And for those among us who are sceptical of the growing disenchantment with Sky, I give you this. A lot of my friends and colleagues have Sky, and many are unhappy, but that's only my anecdotal evidence. Now, I am sure you, my readers, also know several people who are unhappy with Sky, and they in turn will know someone else who is unhappy. So if we all know someone is unhappy with Sky, things are nowhere near as rosy as it would like to make out. That's a hell of a lot of frustrated customers all hungry for something better.

The one credit you can give Sky is that it is keenly aware of its own problems and market challenges, and for a corporate behemoth, has a comparatively fast response to change, which is genuinely rare. It has turned having no return path into an advantage (through premium-rate telephony) and managed to build a formula where it can get a very early payback on its high customer acquisition cost. Recently, we have seen "create your own package" on our TV screens and a monstrously large advertising campaign boasting of content credentials. That kind of defensive behaviour is arguably symptomatic of a company on the ropes. The only question now is when the death punch will come. Sky's executives will tell you they are taking a breath and lying in wait to strike once the whole herd has gathered in its sights. It's a lovely spin, but that's all it is.

NTL is already looking at buying out Virgin Mobile (the virtual mobile carrier powered by T-Mobile's network) to provide the slightly ridiculously-named ‘quadruple play' that is one hallowed step further than the trusted ‘triple play' that Sky is trying to fend off by providing itself. Consolidated cable is a very serious threat, as is competition from the incumbent telco, BT. Sky's strategy of dividing and conquering (investing in Freeview, selling premium channels to its competitors etc) has worked so far, but the renewed vigour of its nearest pay TV rival who can, along with ISPs, exploit its Achilles heel of not being able to provide true video on-demand (general video, not just movies) is a worrying development, whether it is conceded publicly or not.

High above the playing field

A well-kept secret is Sky's "Freesat" service that has been formally introduced to again drive up subscriber statistics, get viewing cards into homes that could upgrade to premium packages, and placate Ofcom. Before the days when such a nice brand was developed for it, anyone could purchase a "Solus" viewing card for their own satellite equipment that would enable them to decrypt public service channels (such as ITV, Channel and Five) broadcast using Videoguard CA scrambling system. Freesat has an ever-growing take-up rate when people realise they can dump the bloated monthly subscription charges to view just the FTA (free to air, or "in the clear") channels that are broadcast over the UK via the Astra and Eutelsat networks. Add a virtual army of telcos and ISPs looking to provide interactive services that are complimentary to existing Free-to-air platforms (Freeview, FreeSat) and the playing field is closing in rapidly. Yes, buying Easynet has given Sky a way of building a hybrid service that uses a broadband back channel, but this again is smoke and mirrors, as will be explained later.