Tomorrow's arrival of Sky’s dedicated OTT service, Now TV, breaks the final link with the set-top box as the historical lynchpin of the company’s revenue growth strategy. Sky has offered online and mobile services for some years, but until now these have only been available to customers who also pay for a Sky set-top box. Now TV breaks that link for the first time and signals a new era for BSkyB as it seeks to grow its customer base on the back of the rapidly growing number of connected devices. Strategy Analytics projects that there will be 88 million connected TV devices and more than 100 million tablets and smartphones in use in the UK by 2016.
It’s a risky approach for Sky because customers who have previously used a set-top box might now decide the OTT approach is easier or, more critically, cheaper. The first Now TV prices are £15/month for unlimited access to the Sky Movies library as well as the Sky Movies live service, or £0.99-3.49 for movies on a pay-per-view basis. With a set-top box Sky customers must pay a minimum of £37.50 a month to access Sky Movies (basic Entertainment pack at £21.50 + Sky Movies at £16). So for customers who really only want to watch movies there is a potential saving of £270 a year.
All this assumes, of course, that Sky Now can be watched on a TV set, and initially it will be confined to PCs, Mac computers and Android smartphones. However connected TV devices, including Xbox 360 and PS3, will be added to the mix before the end of the year. That’s when we’ll begin to see the real potential of the new service, although it may cream off some tablet and smartphone owners as well in the early months.
The arrival of Sky Sports in Now TV will also be key. Sky Sports subscribers today must pay a minimum of £42.50 a month. Based on the first Now TV pricing model, we can expect Sky Sports on Now TV to be priced at around £20/month. This price point could prove very attractive to many potential customers who have been put off by higher prices in the past.
The big question for Sky is the threat of cannibalisation: will existing customers be tempted to downshift to OTT and abandon their set-top box? Sky will be watching Now TV’s early performance very closely for any signs of this, and will be carefully balancing the benefits of overall customer growth against any threat to ARPU. As our ConsumerMetrix Sky Customer Profile report showed, value for money receives the lowest rating by Sky's customers (see chart below).
These are interesting and potentially game-changing times for the pay TV industry.