Sky is launching NOW TV:

• To extend Sky’s reach to consumers unwilling to commit to a pay TV subscription: currently 11m UK households do not have pay TV

• As a defensive measure against the proliferation of OTT video and TV services in the UK market such as Netflix and Lovefilm which have proven particularly adept at making themselves available via a growing range of connectable devices

• Because it is a low risk strategy: launch marketing spend will be significant however NOW TV is using the same content rights, distribution technology, sales and customer service infrastructure which underpins Sky TV and Sky Go. NOW TV offers a way to increase ROI on investments the group would be making anyway.
  

Sky’s growth is slowing while competition is intensifying

Sky’s core pay TV business is slowing and limited growth potential remains in untapped households and in increasing ARPU of existing subscribers through upselling additional content and services. Competition is intensifying from Virgin Media and a rush of enthusiastic OTT specialists targeting a rapidly growing addressable market of IP connectable devices. Sky’s strategy of increasing the value proposition of the pay TV subscription has served it well for many years however it is not the ideal tool in a fragmenting environment in which consumers want more flexibility across more devices.

NOW TV diversifies Sky’s competitive arsenal

NOW TV is Sky’s vehicle to break out of the constraints of pay TV subscriptions increasing growth potential following two of the slowest quarters in Sky’s history for net subscriber additions (only 15k in Q1 2012). NOW TV will augment Sky’s existing standalone OTT service Sky Go and enables a greater degree of market segmentation without eroding the premium positioning of the Sky brand. It is also a recognition of the viability of a fast growing addressable market of connectable devices in the UK and the increasing traction of alternative content charging models in particular short-term subscription and transactional VOD. Given the emergence of Netflix in the movie space, multiple online catch-up services from UK terrestrial broadcasters, growing spending on transactional platforms like iTunes and Blinkbox and ongoing high usage of illegal online streaming providers, Sky’s strategy acknowledges the reality that there are plenty of competitors ready to grab their share of audience consumption on IP-delivered services if they do nothing.

NOW TV will target devices which would otherwise erode Sky’s share of the audience: platforms which were once threats become opportunities. NOW TV will target connected TVs, games consoles as well as the rapidly growing tablet market. We believe that the number of connected TVs, consoles and tablets in the UK will double to over 26m in 2015 from 13m at the end of 2011. Sky will leverage the expertise it has developed in offering multiscreen and out-of-home distribution to existing pay TV customers, the connected TV expertise of the recently acquired Acetrax as well as a formidable content arsenal in evolving NOW TV.

NOW TV can even target homes which subscribe to competing pay TV services by distributing content through connected TVs, consoles or tablets. It will be interesting to see if Sky could convince customers to acquire their content directly via NOW TV rather than subscribing to Sky channels via a competing pay TV service provider: will consumers prefer to add a Sky channel accessible only via their STB rather than through NOW TV which will be accessible through connected TVs, consoles, smartphones and tablets?

Will NOW TV succeed?

The appeal of NOW TV is greatest in sports and movies where Sky’s content rights differentiate it from other OTT services: Sky enjoys a lock on FSPTW movie rights across all six Hollywood majors and the broadest collection of UK sports rights including Premiership and Champion’s League football, F1 and Test Cricket. Illegal sports streams are widely available online (especially for football) and Sky will look to monetise as much of this audience as possible through TVOD matches on NOW TV. Entertainment will be a tougher proposition given the strength of terrestrial broadcaster catch-up services in the UK lead by BBC’s iPlayer however Sky’s content rights to US programming again constitute a significant point of differentiation from the rest of the market.

However NOW TV is entering a relatively small market by pay TV standards:in 2011 the UK OTT TV and Video market was worth less than $395m and is likely to grow around 30 per cent in 2012 to top half a billion dollars by year-end. While we expect NOW TV to be a significant overall market driver for OTT distribution in 2012 and beyond it will be some time before NOW TV revenues significantly impact Sky’s overall revenues. If NOW TV can break 100k subscriptions by the end of 2012 and has started the arduous process of converting the illegal sports streaming audience to the paid option, it will be performing well.

According to our latest 3D research, more than a third of homes in both the US and Europe will own a 3D-ready TV within the next 3 years. Household penetration of 3DTVs will be slightly higher in Europe (42%) than the US (34%). We also project rapid adoption of a wide range of other 3D-ready devices, include set-top boxes, Blu-ray Disc players, games consoles and portable devices (including phone handsets). A detailed forecast chart is available here.

This market is being driven by industry push as much as consumer pull: manufacturers such as Panasonic, Sony and Samsung will be driving 3D capability through much of their TV product line-ups over the next couple of years, so many TV buyers will be buying 3D-ready TVs whether they specifically ask for them or not. A major question therefore is how often those 3DTV owners will actually put on their glasses (active or passive...) to watch 3D-originated content. Given the current paucity of 3D channels and even 3D Blu-ray discs, the answer would have to be "very rarely".

So with 3D device adoption growing rapidly, it's now up to content developers and distributors (ie broadcasters, network operators) to feed those devices. Hollywood's continued enthusiasm for 3D cinema releases offers some encouragement that 3DTV movie channels have a future for the home-based user. Likewise, the significant investments in 3D production by major sports rights holders like BSkyB should seed the market for 3D sports channels.

But as we have pointed out previously there are risks to the 3DTV opportunity, not least the increasing prevalence and improving quality of in-home 2D-3D conversion technologies, as well as the lack of true 3D-originated content for broadcast availability. The technology vendors are doing their bit: it's now over to the content producers to make the most of the opportunity.

David Mercer

Client Reading: Global 3D Enabled Device Sales Forecast

We don’t do this very often folks, but as a seasonal gift we have made our 2011 Digital Home Predictions report available to everyone, whether a Strategy Analytics client or not. You can download the full report here. A lot of the talk at the moment is about Google’s troubles with its TV offer: there will be little to see at CES after all, much to the annoyance of Google’s many partners no doubt. But this setback should not be seen as a a sign of general malaise in the connected TV industry: Apple has just reported that its TV solution is finally gaining some traction, and we expect continued progress from other key players in the rollout of internet TV to the big screen during 2011. We may even see Facebook moving into this space. Headline number of the year will be tablet revenues, which we predict will exceed netbooks. We also think Apple needs to revamp iTunes to take account of the connected device era, and Nintendo may have to take the plunge and launch the successor to the Wii. We’ll see further innovations in the TV control arena, with touchscreens, phone apps and motion control all featuring more widely. But 3DTV is likely to see only slow progress: sure, people will be buying 3D-enabled sets, but less than 20% will be watching 3D content on them. And one more stat to whet your appetite: more than one billion people worldwide will be using social networks for the first time during 2011. And since you are one of them, please go ahead and read the full report, and any comments and feedback are always appreciated. Best wishes for a peaceful holiday season. David Mercer Client Reading: Profiling the Connected Media Consumer - UK

The excitement around 3D has been palpable over the past year, beginning with the numerous announcements, roll outs and demos at CES.  The momentum continued through the spring and summer, with more service providers putting stakes in the ground, and carried over to this year’s IBC show, where Strategy Analytics hosted an analyst breakfast on the topic with Sky 3D head, Brian Lenz.  The verdict? Excitement and hype levels were skyrocketing.  The question remains, though, whether or not anyone can spin this into a viable and profitable consumer offering. Over the summer, we fielded a 4,800 respondent survey  in five countries (France, Germany, Italy, UK and US), asking individuals about their understanding of, interest in, and willingness to pay for 3DTV.  The results are covered in detail in report we just published last week.  Here are some highlights:

Translating 3D Excitement into 3DTV Viability is Challenge

Over 70% of those who have seen 3D in the movie theater are impressed by its quality, but only 55% of those same individuals say they’re interested in watching 3DTV at home. How can Service Providers translate the cinematic excitement around 3D into a viable residential business? We found a few barriers standing in the way, including a dearth of content in 3D, luke-warm consumer interest in paying, hardware issues (the need to wear glasses), and widespread market uncertainty.

Market Uncertainty is a Barrier

Respondents were asked a battery of questions around their perceptions of 3DTV, including availability, hardware requirements and potential health and safety issues.  While overall awareness is quite high, with 94% saying they believe it’s possible to see 3D films in a movie theater, on other questions, the market uncertainty is substantial. The most surprising, and most critical finding to both vendors and service providers alike, is the uncertainty surrounding perceived health risks. Overall, 70% of respondents said they were either unsure or believed that watching 3DTV causes damage to the eyes. We believe that this perception issue, which proved to be common across the five countries surveyed, is a key hurdle standing in the way of widespread adoption of 3DTV. Regardless of the validity of the belief, customer perception is what matters, and such widespread uncertainty could prove disastrous if not addressed appropriately.

Perceived Health Risk by Country (“3DTV Causes Eye Damage”) N=4,803

Source: Strategy Analytics

Target: Cube Tubers

3DTV, at least in the short term,  will be largely a niche application, attractive to only a subset of the general population. Through our survey work, we have isolated and identified this demographic as the “Cube Tubers,” and suggest that they should be viewed as a key target market for service providers and equipment vendors. These individuals represent between 8%-10% of the overall population, and are unique in their intentions to purchase a 3DTV in the upcoming year, and to be active premium/HD customers.  Cube Tubers,  who are predominantly young, educated married males, are nearly twice as likely as the average Joe to expect to pay for 3DTV.  Willingness or expectation of paying hits on an issue that many in the industry seem to be overlooking.  Few question the “wow” factor of 3D.  Rather, the question is, how do you make money at it? Client Reading: 3DTV: Will Consumers Buy It?

Many thanks to Jeff Baumgartner at Light Reading for reminding me of my post last September concerning ActiveVideo Networks and the company's suitability as a potential Cisco acquisition. I had also just noted that ActiveVideo is planning to exhibit on Cisco's stand at this year's IBC starting tomorrow. I'm sure the relationship is quite harmless at the moment, but who knows where things may lead? If you're at IBC, hurry to register for our free-to-attend 3DTV Analyst Forum. We’ll be presenting great insights from our 3DTV research, and Sky’s Brian Lenz, who has headed up the company’s 3D initiative, will be giving the audience his thoughts on our findings as well as an update on Sky’s 3D launch plans. Attendees are invited to register in advance by visiting www.strategyanalytics.com/ibc2010.html. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

This year’s IFA www.ifa-berlin.de nicely summed up the opposing challenges facing the next wave of TV technologies. The plethora of new connected TVs on display from every major manufacturer seemed barely able to cope with the variety of Internet and managed content and applications available. By contrast, the many 3D-enabled TVs seemed starved of suitable material with which to show off their capabilities. Watching the 3D story unfold at IFA also served as a nice hors-d’oeuvres to this weekend’s IBC in Amsterdam, when you can learn more about industry and consumer adoption of 3D at our Analyst Forum: it’s not too late to register at www.strategyanalytics.com/ibc2010.html. Given that internet TV, or connected TV, or “smart TV”, depending on your preferred nomenclature, has been at least a decade in the making, perhaps it is inevitable that it seems to be making faster progress towards mass market adoption than 3DTV, which, in spite of decades-old visions, has really only begun to gather speed in the last year or two. Nevertheless, it was clear from duplicate and triplicate demonstrations of the same 3D animated movies and football games that the dearth of 3D-originated content remains 3DTV’s biggest challenge. Which makes it all the more strange that most of IFA’s big names were extremely reluctant to promote the ability of their 3DTVs to turn bog standard 2D into 3D content, on the fly and with no additional hardware required. As various Sony, Panasonic and Samsung representatives explained, to one degree or another “in-set” 2D-3D conversion was not yet considered “good enough” to warrant live demonstrations to the German technology-buying public or indeed the rest of the industry. Sony came close to giving the game away: the information board behind a line of 3DTVs noted the fact that any 2D content could be converted to 3D “by pushing a button on the remote control”. But when asked to demonstrate this functionality we were informed it was not possible on the show floor. Samsung’s stand also featured a large number of 3DTV demonstrations, all of which featured 3D-originated content of one sort or another. The only real time 2D-3D conversion demonstration featured games material. Other 3DTV sets around the stand could be switched to 3D conversion but staff were unable to supply glasses so that the effect could be appreciated. Panasonic’s representative was open in admitting that the company was behind in devlopment of in-set 2D-3D conversion technologies, and only included it as a feature “because everyone else was”. I got the strong sense that staff on many stands were tired of deflecting questions about 2D-3D and that their lives would have been made slightly less tedious if demonstrations had been available. The major exception to this was of course Toshiba. Of course, because Toshiba continues to push its Cell processor technology as a platform for real-time rendering and upscaling of 2D to 3D content. Toshiba was the major firm least backward in coming forward with in-set 2D-3D conversion, offering a number of demonstrations open to public view. These included one which claimed to offer conversion of “regular” 3D TV broadcasts to “full” 3D. The demonstration offered side-by-side comparison of otherwise identical content. To my own eyes this was not too impressive, with artefacts clearly visible in the upscaled version, even if the overall effect from a distance was greater sharpness. It was certainly a long way from matching the Blu-ray 3D experience. Toshiba also demonstrated “standard” 2D-3D conversion, which was less problematic although mild “ghosting” effects were visible. However the 3D effect, while obvious, lacked any great depth. Having said that Sony’s TV people were not discussing “in-set” conversion, around the corner the company’s Vaio group had probably the most impressive real-time 2D-3D conversion I have yet seen. A prototype Vaio used a combination of hardware (graphics card) and software (both in prototype development stage) to convert 1080p MPEG4 video to full HD 3D (2*1080p), the equivalent of the Blu-ray 3D standard. The product is currently targeted for Q1 2011 availability as a notebook product. 3D was selectable on the prototype by pressing a 3D button. Clearly the processing power required for this impressive demonstration is unlikely to feature in a TV set in the near future, but it is surely only a matter of time before it becomes widely available in mass consumer products. The sensitivity around 2D-3D conversion was the story that dared not speak its name at this year’s IFA. Yes, the technology is immature and the quality falls short of “true” 3D productions. But that will change and the content-owner dam which is currently holding it back will eventually break. As we will see at our 3DTV Analyst Forum, the TV production industry itself remains unconvinced that it should invest in 3D technology until issues such as this begin to settle down. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

It’s been implied on more than one occasion by various commentators that the arrival of 3DTV is “too soon” because many people have only recently bought their first HDTV and will be reluctant to invest once again in a new technology. The argument makes sense on the surface, but, as usual, a little digging into real data tends to prove otherwise. Our survey of 700 UK consumers found that current HDTV owners were in fact more than twice as likely to be interested in buying a 3DTV than non-HDTV owners. Specifically, 13% of HDTV owners say they are “somewhat” or “very likely” to buy a 3DTV during the next 12 months, compared to 6% of non-HDTV owners. Given that HDTVs are still in only half of UK households, this hardly suggests that 3DTV’s prospects are being held back because people have already bought an HDTV set. The truth is that it’s likely to be the same early adopters who bought HDTV who will also go out and buy the next latest and greatest TV technology. We’ll be presenting these and many more insights from our research at a free-to-attend analyst forum during this year’s IBC, and Sky’s Brian Lenz, who has headed up the company’s 3D initiative, will be giving the audience his thoughts on our findings as well as an update on Sky’s 3D launch plans. Attendees are invited to register in advance by visiting www.strategyanalytics.com/ibc2010.html. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

3DTV will again be one of the hot topics at this year’s IBC in Amsterdam. Unlike previous years, however, discussions and demonstrations will take place against the background of broadcasters delivering commercial 3D services to residential TV viewers. Since earlier this year 3D television programmes have been broadcast, if only on a selective basis, to viewers of some cable, satellite and IPTV services in the US and Europe. But as sales of 3D-capable TVs begin to take off, Sky’s UK launch of the first full-time 3DTV channel on October 1st will confirm the arrival of 3DTV as a fully fledged consumer proposition. But compared to the excessive hype which has built up over the last couple of years as the industry geared up for launch, the mood this year may appear to be markedly more realistic, and tinged with more notes of caution than were previously evident. It’s still too early to discuss consumer reaction to fully fledged home 3DTV services (as opposed to any of the out-of-home options) – the number of people who have actually seen a 3DTV broadcast in the comfort of their own homes is still tiny. But pre-launch surveys are suggesting 3D in general may not become the sure-fire success many were hoping for. Strategy Analytics’ own consumer surveys suggest a very mixed response across the board. Our survey of European consumers is still in the field, but the first results from the US suggest that the industry must at least overcome doubts about the health impact of watching 3DTV. More than half of respondents are unsure whether watching 3DTV can cause damage to the eyes, and 17% actually believe that 3DTV may cause damage. With the level of uncertainty the industry clearly has a lot of work to do to bring 3DTV to the mass market. Overall we found that 11% of people are somewhat or very likely to buy a 3DTV during the coming year. This may not sound a lot but it’s not bad for a newly launched technology. What’s interesting is the impact of previous 3D experiences on buying intentions. In total 60% of Americans say they have seen a 3D movie at the cinema, and a quarter say they have been very impressed with the quality of the 3D experience. Those people are four times more likely to buy a 3DTV than people who say they were not impressed with 3D at the cinema. This may not be surprising, but it demonstrates the importance to the industry of continuing to improve the 3D experience in the cinema in order to meet its overall goal of bringing 3D to the home viewer. We’ll be presenting many more findings from our research at our free-to-attend analyst forum during this year’s IBC, and Sky’s Brian Lenz, who has headed up the company’s 3D initiative, will be giving the audience his thoughts on our findings as well as an update on Sky’s 3D launch plans. Attendees are invited to register in advance by visiting www.strategyanalytics.com/ibc2010.html. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

Strategy Analytics' latest consumer survey indicates great uncertainty over the potential health effects of watching 3DTV. 17% of our 2000 US survey respondents say they believe that watching 3DTV will cause damage to their eyes. Perhaps even more significant is that more than half of respondents are uncertain whether 3DTV has a health impact one way or the other. Faced with that level of doubt, 3DTV marketers - both TV set manufacturers and broadcasters - have some work to do to convince people that 3D is something worth risking their health on. The truth of the matter remains a subject of some debate. In response to the fact that some viewers report feeling unwell after watching 3D, or can only watch comfortably for limited periods, some claim that these impacts will be reduced as the technology matures. Whatever the case, the industry clearly must get to grips with the communications issue before unsubstantiated rumours get out of hand. We'll be presenting more details on our new 3DTV research at this year's IBC in Amsterdam. You can also hear BSkyB's Brian Lenz discuss his own company's plans for 3DTV. Attendance is complimentary but we encourage pre-registration as space is limited: Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

We're delighted to announce our plans for this year's IBC in Amsterdam. For many years now Strategy Analytics has offered an analyst forum focusing on key topics relevant to the television and broadcast industries. This year we are focusing on 3DTV, still very much the hot topic in the industry, especially as we head towards the commercial launch of 3D residential services in Europe when Sky launches 3D on October 1st. With that in mind we are pleased that BSkyB's Brian Lenz, who has spearheaded the company's development of a 3D service, will join us to discuss our latest research findings and update everyone on the latest news from BSkyB. We'll present hot-off-the-press consumer findings from our latest surveys, and our colleagues from D. I. S. Consulting will also unveil the latest research from the production community. It should be a great session to kick off the first full day of the show. The event is free of charge but as we have limited space we're expecting a full house so please register your interest as soon as possible. 3DTV Analyst Forum at IBC 2010: Strategy Analytics and D. I. S Consulting Saturday 11th September 2010 Holiday Inn, "Manhattan" Room, De Boelelaan 2, 1083 HJ Amsterdam, The Netherlands Schedule 8.00-8.30 Networking Breakfast 8.30-9.10 New 3D Research: Analyst Presentations 9.10-9.30 Guest Speaker: Brian Lenz, Director of Product Development, BSkyB 9.30-10.00 Panel and Audience Q&A Client Reading: Video Capture Devices: Global Market Forecast