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Discovery and Sky Do a Deal

[A follow-up/continuation of the piece I wrote the other day about the fallout between Sky and Discovery in the UK and Germany.]

On Sunday morning there was an epic final at the Australian Open. Somehow the top 8 men’s players in the world conspired not to make the final, and we got a “throwback” final of Rafa Nadal (9) v Roger Federer (17). The last time these two played in a final together was 6 years ago in Roland Garros.

The match duly ran into a tense and exciting fifth set, with Federer coming out the winner after some amazing points played at the highest level. The match was broadcast on Eurosport (a channel owned by Discovery), and no sooner had the final point been scored, than the Eurosport commentator was reminding viewers, via a prepared script, that in the next few days Sky viewers would no longer be able to watch this channel and others in the Discovery portfolio, and that viewers should either phone Sky or contact them on social media.

As it happens, viewers can now breathe a sigh of relief. Late on Tuesday, a deal between the two companies was agreed, and the channels did not go off air at midnight last night.

Quite who “won” isn’t too clear with reports that both sides claiming victories of sorts.

Set against this was the background of Fox trying to take full ownership of Sky at the moment – something that Ray Snoddy notes in his piece about the affair.

The dispute broke into the open last week, with Discovery setting up a specific site (which some Sky broadband customers reported to have had trouble accessing), and Sky hitting back with pages on its own site suggesting alternative programming that Sky provides.

Over the weekend and for the last few days, there was also a blitz of press advertising from Discovery and Sky, presenting their cases with various levels of implied aggression.

In the UK, we’ve not really experienced a lot like this. Perhaps the biggest channel carriage fallout was between Sky and Virgin Media, which saw some Sky channels, including Sky One, removed from the platform.

Of course, Sky continues to limit access to its Sky Atlantic channel, meaning that its not viewable on Virgin Media, BT TV or TalkTalk TV.

The availability of Sky Sports channels was also messy for a while. Ofcom used to force Sky to provide Sky Sports 1 and 2 on a “wholesale must-offer” basis. That meant that any provider could offer Sky’s channels at a fixed rate (a rate that might be lower than Sky was selling the channels itself). That stipulation was removed in 2015, but it’s notable that on BT TV, only Sky Sports 1 and 2 are available. Whereas Sky Sports 1-5, Sky Sports News HQ and Sky Sports F1 are all on TalkTalk TV. While football, cricket and rugby tend to be on SS1 or SS2, other events might easily float over to other channels – particularly at busy times over the weekend. More recently Sky has launched Sky Sports Mix, which is Sky exclusive although it rarely shows fixtures that aren’t on other Sky Sports channels.

But returning to the now resolved Discovery/Sky dispute, were there really any other options for either side?

When you enter the world of multi-channel paid-for TV, you enter the world of bundles. You don’t agree to take Sky or Virgin Media, and then carefully list the channels you’d be interested in subscribing to. Instead you’re presented with various bundles with different channel line-ups. Premium movies or sports channels are then offered on-top of this.

For example Sky currently retails the Sky Variety bundle for £32 a month (prices and bundles vary the whole time, but we’ll go with this value). They say that includes 373 channel (11 being HD channels), of which 250+ are free-to-air. In other words, you’d get those 250 channels anyway with a basic satellite decoder regardless of having a Sky subscription.

So there are somewhere around 100+ premium channels some of which you’re probably interested in, and they are all getting a proportion of that £32 a month. Sky obviously keeps a cut itself for running the service and its own channels. Beyond that are channel providers that do deals with Sky for some of their offerings. UKTV, for example, will offer channels like Alibi and Gold (neither of which are on Freeview) for a set price a month; ITV has ITV Encore; Viacom has a range of channels including the MTV family and so on.

One channel provider might offer both free-to-air channels and pay channels. UKTV offers Dave free, but Alibi on a paid basis. Discovery itself offers free-to-air Quest, mostly repeats of shows that have previously aired on their main channels. You probably do get bigger ratings for making a channel free, but you have to fight for advertising revenue to make it pay. It’s a fine balance. Subscription revenue is more certain, and if you do a good deal with the likes of Sky or Virgin Media, then the channel ticks over financially on its own.

When you go free-to-air, each channel you make free has to survive on its own accord. While you might try to force advertisers to not be able to buy Dave on its own, but also have to advertise on, say, Drama and Really, it’s a slightly tougher sell. The advertiser might only be after the young male audience that Dave provides.

But when you go down the paid-for route, it certainly makes sense to bundle your channels up. Discovery bundles the various Discovery channels (+1, DMAX, Shed, Turbo, History, Science), along with TLC (and its sister channels), Eurosport 1 and 2, and Animal Planet. Some of these get decent ratings, and have real investment in them (Discovery, TLC, Eurosport); others tick by largely on repeats (Shed, Turbo).

The platform operator has to decide the right mix of channels for the right price. How much of that £32 a month should go to Discovery for its bundle of channels? The operator will consider the importance of the channel (Is a must-offer channel that might mean its subscribers cancel and go elsewhere?), its ratings, investment in the channel (Are they making desirable new programmes and promoting them, helping make the platform better?), and the overall value to consumers. They also have to think about their bottom line.

The channel provider will naturally think their offering is more valuable than the platform does, but they usually hammer out a deal between themselves. Remember, there’s only £32 in total to go around, and that has to pay for some other overall costs as well.

And that’s what this battle has been about. It hasn’t been reported what Sky is paying for Discovery’s channel offering, but I’d guess that it could be anything from 50p to £2 a month per subscriber. To put this in context, in the US, the channel group with the highest monthly subscription fees is ESPN with a reported $7.21 a month of cable bills going to this channel. Unlike the UK, where premium sport is only paid for by those who choose to buy it, ESPN gets less per subscriber, but vastly more subscribers pay it by virtue of the channel being a “must-carry” on nearly all cable households.

During the hurly burly of the Sky/Discovery disagreement, there were a few suggestions made by Sky about how Discovery might monetise its channels:

  • Send channels free-to-air and rely solely on advertising revenues
  • Retail the channels itself via the Sky platform
  • Transform the business into an OTT offering

None of those works easily.

Free-to-air Ad Funded

All these channels already take advertising. Indeed, Sky’s own advertising division, Sky Media, sells Discovery’s advertising. Remarkably, while channel carriage discussions were breaking down last autumn, Sky Media, the advertising side of the businesses actually renewed a long term agreement with Discovery Networks.

But it’s likely that advertising only accounts for perhaps 50% of the channels’ revenues. While going free-to-air would mean that channels would be available in more households, Freesat homes and perhaps expansion onto Freeview, it’s not at all clear that the additional advertising revenues this availability would bring, would make up for the subscription shortfall. In turn that might see less investment in Discovery’s channels, with some of the smaller channels almost certainly needing to be closed down.

It should be said, however, that UKTV has grown its business very successfully by taking channels free-to-air. Dave, Really, Drama, Yesterday and Home have driven their business by being or going free-to-air.

Retail the channels itself

Think of this as the BT Sport solution. Market the channels directly to consumers, taking the revenues without Sky acting as an intermediary.

BT went down this route because they wanted a direct relationship with their customers. But they were in a uniquely strong position in the first place. Their original play was aimed at retaining BT customers who might have moved their phonelines and broadband to Sky or other providers, and so they were starting from a massive customer base. Then they offered an initially free BT Sport service. Stay with us or move to us, and get the channel free. They already had a large billing facility to manage the service. Customers could relatively easily add BT Sport to their channel mix, either on BT’s own platform, or via Sky. And they can market the channel easily – bombarding BT customers with email and direct mail explaining the offer.

The other thing BT had was killer programming. And I don’t mean Shark Week. They had Premier League football, and some decent games at that. Retailing the channel themselves has worked well for them.

But few others try this. There are a handful of specialist sports channels that manage this – Premier Sports and BoxNation spring to mind. But again, they are able to target a specific interest group directly. You want to watch lots of boxing? Subscribe to BoxNation (Although notably even BoxNation has now done a deal with BT).

For Discovery, this is much harder. They’d need to develop a whole new subscription team, and market the channels heavily. While Eurosport could probably reach cycling and tennis fans relatively successfully, the more general interest nature of Discovery is a much harder sell.

In short, this would be an expensive gamble, persuading viewers that they should phone-up Discovery and spend an additional £2.99 a month or whatever to subscribe to their channels.

The OTT Offering

The other route is to sell directly as a streaming service. Offer the linear channels, but also boxsets of programmes, making them available through various digital platforms. In essence Discovery already does this with the Eurosport Player.

If you don’t have a premium TV subscription, then you can pay monthly or annually for access via the Eurosport website or app. Remember, something like 40% of UK television households are Freeview only. So there’s definitely a market to be tapped if the price is right.

Again, that works for sport better than a general entertainment channel.

Summary

Only those in the room will know what really happened, but I would argue that Discovery was between a rock and a hard place. It would have been colossally disruptive to lose its main channel distributor in Sky.

On the other hand, Sky is definitely looking to reduce costs, since it simply can’t place the full 83% increase in Premier League rights fees it’s now paying solely on Sky Sports subscribers. Other parts of the business have to take part of that cost. And this is before we consider the upcoming next round of UEFA Champions’ League rights which if Sky tries to win back, will place an added cost burden on Sky.

Being seen as a “bully” probably also isn’t a good place to be right now for Sky as it seeks regulatory approval for its takeover.

That all said, it’s not clear that bundles are here to stay forever. There seems to be a movement – especially in the US, for “skinny bundles” – a lower subscription featuring a handful of core channels, and then buying “a la carte” services on top. There are “cable-cutters” and “cable-nevers” – those who cancel cable subscriptions, and those who never took one in the first place (especially millennials). They just want to buy HBO for Game of Thrones or whatever.

It’s all certainly a concern for ESPN who can no longer bank on all 100m+ US cable households each paying $7.21 a month for their channels. And if you’re not interested in sport why should you?

Yet buying each channel/subscription separately quickly mounts up. A US subscriber in an OTT world might buy Direct TV Now for a basic selection of streaming channels starting at $35 a month. They might also pay for Netflix, Amazon and Hulu. They add HBO Go for a few more dollars. And then beyond that there are things like CBS All Access if you want the upcoming new Good Wife and Star Trek spin-offs/series. You might expect similar offerings from NBC or ABC in the future. There’s also the forthcoming BBC/ITV BritBox. And only this week we hear that Walter Presents will also be available to US subscribers.

$2.99 here; $5.99 there. That’s a lot of TV that all adds up very quickly.

One way or another, resolution of the Sky/Discovery dispute means that Sky viewers are able to continue to watch Idris Elba: No Limits on Discovery. Which is as well, because Elba is also the marketing face of Sky, and it would have been kind of awkward when he’s plugging the new Sky Q box, that his series wasn’t available to Sky viewers.

Personally, I’m left having splashed out £20 for Eurosport Player before I learnt of the dispute’s resolution. As it turns out, this wasn’t really necessary. That said, that app gives me a number of additional streams that mean I can often watch sports action live, when TV will only be showing highlights later on. So perhaps it’s a fair investment.

Champions’ League on BT

Since I had a look at the Europa League viewership the other day, I thought it was only fair to consider the Champions’ League Final – particularly as some every-so-slightly misleading press information seems to have escaped.

First off, it’s worth saying that this year’s final was one of the worst directed finals I’ve seen in ages. Technically it felt all over the place, with inappropriate cutaways, overuse of the Spidercam, using it for replays of action for which it wasn’t really suitable. Worst of all were the continued crowd reaction shots.

It’s a repeated issue at sports events that directors task some camera operators with finding people “emoting” as much as possible on screen. As often as not, it’ll be a woman the camera lands on, despite the crowd being heavily male skewed. While I’d love to think it was making the sport accessible for both men and women, in fact, it’s an eye candy thing, and frankly it’s outright sexist. See also “podium girls”, coverage of much cricket around the world, and women with umbrellas at the start of motorsport events.

Worst than all of that was the rush to cut to a young girl supporting the losing Atletico Madrid, in floods of tears at full time, when there were plenty of celebrating Real Madrid fans to show. Showing despondent losing fans is fine, but featuring a small child is outright nasty.

UEFA need to get a grip. I don’t know who was responsible, but it was a mess. The sound for the needless opening ceremony at the start was abysmal (at least watching via BT Sport), and indeed either the event director or BT themselves lost interest in Alicia Keys preferring to show players waiting in the tunnel. It didn’t get much better for Andrea Bocelli who had to sing the pointless “anthem” that Man City keeps getting fined for booing.

Leaving aside Pepe’s appalling antics, what about the overall audience figures?

Well unlike with the Europa League, there don’t seem to be actual figures easily available. The Guardian’s report, which, like that in The Drum, seem to be drawn from a BT press release, mentions 4.3m watching with a peak audience of 3.3m.

That’s a bit odd. What you normally get is a peak audience, and then an average for the whole programme. The average is necessarily lower than the peak.

Therefore 4.3m must be the number of people who tuned in for at least a few minutes over the course of the game. A reach figure. Interesting, but not how TV ratings are usually reported. You get a big number, but it doesn’t reflect the audience of the match itself.

Based on a peak of 3.3m, it suggests an overall viewership of, perhaps, 3m. (I’ll update this if I can find an accurate number, but I think I’m being generous).

Let’s put that in perspective and compare with ITV’s audiences in recent years.

DateTeamsResultChannelAudience (m)
28 May 2016Real Madrid - Atletico Madrid1-1 (5-3 pens)BT Sport Europe/BT Showcase~3
6 June 2015Barcelona - Juventus3-1ITV4.31
24 May 2014Real Madrid - Atletico Madrid4-1ITV5.16
25 May 2013Bayern Munich - Borussia Dortmund
2-1ITV3.71
19 May 2012Chelsea - Bayern Munich1-1 (4-3 pens)ITV7.00

So clearly the lowest audience, although last year’s Barcelona-Juventus game was a little low itself. The last British team to make the final was Chelsea in 2012 when 7m people watched.

Ah yes! But this doesn’t consider YouTube!

Well as I said previously, making the match available on YouTube is smart, especially since it’s far more robust than most broadcasters’ own video players. But we need to be very wary of the numbers being bandied about.

“The telecoms giant, which said that it aimed to make the finals as accessible as possible despite paying £897m for the pay-TV rights, said about 1.8 million viewers watched the match live for free on YouTube.”

Now I’ve no doubt that BT got some reasonably detailed metrics from Google on viewers. But I’d need to be persuaded that the 1.8m number is an average viewership over the duration of the programme. More likely it’s based on YouTube “views.” That would tend to mean 1.8m views of at least 30 seconds, at which point YouTube considers you a viewer. A lot of views, but not the same as a lot of people or a large cumulative audience.

If I logged in from time to time during the course of the fixture to see how it was progressing, that might mean that I was considered another view on each occassion.

If I started watching the match on TV, but was then forced to watch in another room on YouTube because someone else in the household wanted to watch Britain’s Got Talent, I’d potentially be double counted.

On the other hand, I might have Cast YouTube to my TV set and watched with half a dozen friends. YouTube views isn’t able to help with this situation either.

Video views online are not the same as a TV audience.

Simply adding together peak audiences and YouTube views across the two European finals is not what anyone should be doing.

Considering that no British teams were in the final, BT didn’t achieve a dreadful audience. But reports that say the two finals were “watched by more than 12 million across digital and TV,” are utterly misleading, counting the same people perhaps multiple times.

Whether UEFA thinks that it’s premium club competition was as available to all as much as it might have been will be for UEFA and BT to discuss. But let’s not believe all the hype and dubious numbers.

The Champions’ League – Part Two

This is a follow up to yesterday’s piece anticipating BT’s changes in packages having won exclusive Champions’ League and Europa League rights, although I’m mostly talking about Champions’ League coverage here.

Well BT has announced its new football deal and there were some things we expected, and some things we didn’t.

Yes, Gary Lineker is going to be one of their presenters – I imagine him and Jake Humphreys taking Tuesday and Wednesday nights.

Yes, it’ll cost £5 for many people (much more on this below).

Yes, there’ll be a new Freeview channel, BT Sport Showcase which will be where the free-to-air fixtures are shown. But this will be SD only for most people (everyone?), so will look absolutely rubbish on your 46″ TV (And approximately 10% of the country won’t get this channel at all on Freeview. It’s unclear if it’ll pop up on satellite).

The channel has some new pundits in Steven Gerrard (hope he’s up for some media training, because his post match interviews are awful), Rio Ferdinand and Glenn Hoddle amongst others. And there’ll be a 4K service for “select” fixtures. But that’ll need a new box and, in my opinion, a TV somewhere around 55″ or bigger to make any difference.

There’ll also be a “Goals!” show with James Richardson on Champions’ League nights that will chase around all the simultaneous kick offs and show the goals as they go in. Those with long memories may recall that the capacity constrained OnDigital did the same thing. And of course Sky had a red button service that hopped around goals.

The cost of HD is going up 33% for sports pack customers from £3 to £4 (they didn’t highlight this, oddly).

But the devil is in the detail and it’s not all clear at the moment.

BT seems to be making another play for BT TV, their television offering. The trouble is that it’s sub-standard compared to Sky and Virgin Media. The channel choice is limited and significant channels are missing from their options.

From the starting point that they’re appealing to sports fans, then there’s already a limited offering in that only Sky Sports 1 and 2 are available. And in SD only. That should get you most Premier League games, but you’ll be missing out on other sports – golf, European football and F1 immediately spring to mind. And the lack of HD becomes ever more important as screens get bigger. SD is just awful on anything from 40″ upwards. There’s no Eurosport either – which is important to me for cycling coverage. [Update: There is Eurosport, and in HD. See comments for details.]

So a sports fan watching via Sky or Virgin is perhaps unlikely to ditch their current platform.

Now there’s no mention of Virgin Media anywhere at the moment, so we’ll assume that the deals haven’t been done, and that this will happen in due course.

For the large number of Sky subscribers, there are two deals on the table, and we don’t know what one of them will cost.

– Those taking BT Broadband are looking at £5 a month for the full BT Sports Pack as the new package including the regular BT Sports channels, plus the new European one seems to be called. Then it’s £4 a month for HD. But what extra channels are they getting in HD? For Champions’ League and Europa League, there will be at least two British teams playing simultaneously in the league part of the competition. Will Sky and Virgin viewers be able to see both those games in HD? Or will there be a single HD channel and a red button SD service? It seems that the latter is likely since only one additional channel is being launched.

– Those who don’t have BT Broadband – e.g. Sky customers who have, perhaps, a Sky Broadband deal – will have to pay at least £13.50 a month for an SD package, and quite probably more. BT hasn’t released pricing. This has to be a substantial part of Sky’s football subscribers, and therefore a market that BT wants to reach. Charging perhaps £15-20 is a really steep ask, and I’m not at all convinced that many will bite. From what we can tell, the vast proportion of current BT Sport providers are BT Broadband customers getting it free. Relatively few football fans are paying £13.50 for a meagre offering of additional Premier League matches (one more year of the current Premier League deal to go), and lots will have decided that not spending the money is worthwhile for a handful fewer games. Champions’ League football does make a difference, but I wonder how much? This is the toughest sector to move.

For me as a Sky subscriber but with BT Broadband and wanting to watch Champions’ League football, I’m looking at paying £6 more a month (+£5 BT Sport; +£1 increased HD cost) for less HD football. Furthermore, depending on the draw, as an Arsenal fan, I face the prospect of seeing little HD football on the Sky platform because programmers tend to choose, say, Man Utd or Chelsea over Arsenal when highlighting a single fixture. And will I be able to record those red button channels?

Viewers of BT TV seem to get all the channels in HD. So is this an attempt to lure current Sky viewers – particularly those on BT Broadband – into getting a second box and watch via that? The “free” price point for those taking the minimum TV offering suggests that’s the way to go. Even with high-speed fibre, I’ll need convincing that sport is capable of glitch-free playback via IP. Can I do both? Get BT Sports on both Sky and BT TV for one fee?

It also looks like people currently getting BT Sport 1, 2 and ESPN free will actually only get BT Sport 1 free in future. BT Sport 2 and ESPN become part of the paid-for BT Sport pack. Because those people currently have the “BT Sports Pack” which is £0 currently, I wouldn’t be at all surprised if they’re not rolled up to the £5 package. “BT Sports Lite” is a new package altogether which customers may well have to opt to choosing pro-actively.

The issue regarding months when little European football is played (e.g. January) isn’t really addressed – except you without a subscription you can’t see BT Sport 2 or ESPN during those months. This doesn’t make me want to rush to pay for August though since the Champions’ League proper doesn’t start until mid-September.

Overall, it’s a thoroughly confusing offering.

BT’s marketing material is really going to have to work hard at explaining how costs are broken down, with different prices dependent on platform and broadband supplier, and different HD and 4K offerings dependent on platform.

Their website is currently woefully short on information.

The one thing I’m pretty confident about is that the free-to-air ratings will be terrible. Unless they offer a little more in the way of “Showcased” programming, few will discover the channel on the occasions that they show games free of charge.