As a long term Sky TV customer I’ve often been frustrated at the lack of attention the company gives to its loyal customers relative to its interest in winning new ones. While I understand the business goal – winning new customers is always much more expensive than retaining existing ones – as a customer it can leave a sour taste in the mouth. That taste was sweetened this morning by an unexpected call from Sky customer services offering me a new HD DVR, together with 12 months’ subscription to HD channels, all at no additional cost. No set-top box charge, no “set-up fee”, no installation charge, no further commitment. The normal fee for an existing Sky customer to upgrade to this package, as still described today on the company’s website, is £180 - £60 set-up cost plus 12 months of HD channels at £10/month. From £180 to zero – that’s what I call a discount. I couldn’t let the fact that I don’t yet have an HDTV, or my general rule to reject all cold calls, prevent me from accepting this offer. Sky’s latest HD DVR should represent a vast improvement over my 9-year-old Sky+ model, in speed and ease of use, interface and EPG, and storage capacity. I won’t get the benefit of the HD channels, but maybe, just maybe, those free channels will be enough of an incentive for me finally to replace my CRT TV. Sky’s initial financial loss on this, and presumably many other HD upgrades, results from their determination to remain competitive in the years to come. The resistance of many of their customers to subscription fees is high, as shown by our own user research. We found that, while Sky’s overall satisfaction ratings are high, more than a quarter of Sky’s customers would switch to another provider offering the same service for 10% lower monthly fees. We also found that more than a third of Sky’s customers do not rate the company as meeting expectations on value for money. With this new offer, although it is limited to selected existing customers, is aimed at the right spot: to make sure its subscribers are not lured away by competitors such as Freeview HD, Freesat HD, Virgin Media and BT Vision. While none of these alternative providers offer the exact same package as Sky, they are each, in their own way, becoming more competitive in certain aspects. Slowly but surely it seems as though the UK pay and multichannel TV sector is finally opening up to greater levels of competition. Whether Sky’s financials can withstand the impact of these customer retention strategies remains to be seen. David Mercer Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings

I attended the Westminster Media Forum Seminar in London this afternoon, entitled Pay TV – market prospects , competition and service to viewers. The conference took place somewhere deep in the bowels of the Local Government Association headquarters near the Houses of Parliament. The rising temperature reflected the growing intensity of the debate as the afternoon wore on, while the absence of a view through outside windows nicely reflected the fact that “Sky” was the only major player absent from the debate. The Forum assured us that the “gorilla” had been invited. My overall impression is that these sessions tend to veer too much towards the old “how do we reduce Sky’s power” debate, hence the reason for that company’s decision to decline invitations to speak. We were however treated to comments from expert participants from the regulatory and legal fields, as well as from Freeview, Freesat, BT Vision and Virgin Media Television. Kicking off the debate was Stephen Unger, Competition Policy Director at Ofcom, who summarised the current state of the two investigations currently relevant to pay TV in the UK market. These are 1. the submission from BT Vision, Setanta, Top Up TV and Virgin Media, and 2. the application from Arqiva and Sky to launch Picnic, a pay TV service on the DTT platform. Both investigations are still in progress, and after second consultations a number of preferred options are being considered. According to Unger, Ofcom “believes that Sky has an incentive to restrict supply to other retailers and other platforms, and there is evidence that Sky is acting on that incentive”. Ofcom’s preferred option is to propose a wholesale must offer obligation on Sky. In other words, Ofcom would regulate the prices at which Sky must offer its channels to other platforms. It would be necessary to determine how prices are set as well as certain non-price issues (for example, protecting against piracy). If this option is agreed, it will also be consulted upon, probably by Spring 2009. Later in the day, Jenine Hulsmann, a Partner at lawyers Clifford Chance, made one of the best contributions. She pointed out that competition law is not good at addressing pricing issues. In her opinion it would be “a very great challenge” for Ofcom to establish a pricing mechanism that is acceptable. She also made the point that there would inevitably be one, if not several, appeals once any decision was made, and that these appeals would lead to long delays in any implementation of Ofcom’s proposals. Hulsmann made one final recommendation for content owners who might have contracts with Sky: “Check your contracts for any clause that allows for Sky to renegotiate in case of a change in regulation.” Martin Coleman, a Partner at Norton Rose, observed another challenge facing Ofcom, concerning the definition of channels and their related content. If regulations are introduced relating to “sports” or “movies” “channels”, these must be very carefully defined in order to prevent changes that might circumvent regulations. In other words, a regulation that decides on the appropriate price for Sky Sports 1 showing Premiership football would be little use if Sky decided to remove that content from that channel and show it elsewhere. Ilse Howling, MD of Freeview, and Emma Scott of Freesat, each presented lots of research about the appeal of their respective “free-to-view” platforms. Maybe it was the constant repetition of the word “free” that got to me, but I couldn’t take my mind off the fact that no one had so far mentioned the fact that these “free” platforms would not have come into existence without the government-mandated annual licence fee, and would not be half as appealing without the BBC’s digital channels. So had any of this research addressed the issue of acceptance of or resistance to the licence fee? Apparently not… Emma Scott suggested that Freesat’s research had “never had any negative feedback about the licence fee”, which suggests to me that they had never asked the right questions. Howling at least admitted that the question of cost does come up in Freeview’s research, and consumers do raise the issue of the price of set-top boxes and/or aerial installations and upgrades. But there was no evidence that consumers related Freeview to the cost of the licence fee directly. These two debates – competition in pay TV, and the future of public service broadcasting – cannot be considered in isolation. Together they form one overriding question – “How should television be funded in the digital era?”. Any debate that focuses on a single funding issue is going to reach conclusions of limited value. Considering the bigger picture would achieve a more rounded perspective from all sides of the industry, and may even attract the attention of the absent gorilla. Client Reading: The Television and Movie Industry Explained: Where Does All the Money Go?

As I have pointed out recently, the publicity surrounding HD broadcasting in the UK, whether it’s Sky HD, Freesat or DTT’s future plans, has not been matched by the pace of consumer adoption. This is in sharp contrast to the experience of our Norwegian neighbours across the North Sea, where the decision by pay TV operator Canal Digital to remove the additional HD subscription fee has led to a surge in HDTV viewing in recent months. While Sky has just reduced the fee for a new HD set-top box, it still charges viewers an additional £10 a month to watch the limited number of HD channels available, and that depends on what premium packages customers pay for. As a result, only 5% of Sky viewers can currently access HD channels. By contrast, 25% of Norwegian customers of Canal Digital are now watching HD programmes, according to Strategy Analytics’ estimates. On a similar basis, Sky could have reached more than 2 million HD viewers by now, four times its actual level. The time will come sooner or later when the HD fee is removed, at least for some channels. HD broadcasters not owned by Sky, such as Discovery and National Geographic, must be frustrated that their audiences are not building more rapidly and will surely increase the pressure for a change in policy before too long, as will Freesat and Virgin Media as they slowly but surely improve their HD offers. Client Reading: High Definition TV, Video and Digital Media Devices: Global Market Forecast

Today's launch of the first dedicated free-to-air satellite service, Freesat, will help inject some much-needed competition into the UK's HDTV market. Even though its HD performance has been disappointing, Sky Digital remains the only major source of HD broadcast content in the country, notwithstanding Virgin Media’s offer of on-demand HD video. Freesat has been four years in the making and is a joint venture initiative of the BBC and ITV. 17.9% of the latter, of course, is still owned by BSkyB. Although Sky has been directed by Ofcom to reduce this stake, the matter is currently under appeal. Whatever the result of that lengthy dispute, Sky’s holding does not seem to have prevented ITV taking the significant decision to restrict its own soon-to-be-launched HD service to the Freesat platform, thus providing Freesat with a competitive advantage over Sky’s HD service, whose paying subscribers will not be able to see ITV HD. How much of a disadvantage that is for Sky, only time will tell. But given the paucity of choice in HD broadcasting today, and the continued popularity of ITV programmes, it should at least provide some pressure on Sky. The other HD channel on Freesat, BBC HD, is also available to Sky viewers. ITV and the BBC, more than most, will be regretting the exit of England and the other home nations from the finals of the European Championships, for which they will be providing live coverage. Live games in HD could have provided a significant boost to Freesat uptake. The major difference from Sky of course is that Freesat viewers will not have to pay a monthly subscription for their HD programmes. BBC and ITV alone would not appear to be a huge attraction for viewers to buy and install new HD set-top boxes at £200 or more, so much will depend on persuading other channels to launch HD over the coming months. As we have discussed, free-to-air HDTV (excluding well-funded public broadcasters like the BBC) is a challenging business model until wider platform reach has been established, so we can expect Sky to continue to lead in HDTV service adoption. But competition is usually a good thing, and Freesat will put modest additional pressure on Sky to improve its own range of channels and bring costs down. Freesat channels at launch are listed below (EPG channel numbers in brackets). There are in fact around 40 discreet mainstream TV channels. The remaining 80 comprise shopping, radio and regional feeds of the main BBC and ITV channels. Entertainment (101-199) BBC One (101) BBC Two (102) ITV1 (103) C4 / S4C in Wales (104) BBC Three (106) BBC Four (107) BBC HD (108) ITV2 (113) ITV3 (115) ITV3+1 (116) ITV4 (117) S4C Digidol / C4 in Wales (120) E4 (122) More4 (124) Zone Romantica (135) Zone Thriller (137) News and Sport (200-299) BBC News (200) BBC Parliament (201) S4C2 (202) Al-Jazeera English (203) Euronews (204) Movies (300-399) Film4 (300) True Movies (302) True Movies2 (303) Movies4Men (304) Movies4Men2 (306) Lifestyle (400-499) Wedding TV (402) Overseas Property Channel (411) Men and Motors (450) Music (500-599) Chartshow TV (500) The Vault (501) Scuzz (502) Bubble Hits (503) B4U Music (504) Children (600-649) CBBC (600) CBeebies (601) CiTV (602) POP (603) POPGirl (604) Tiny POP(605) Special Interest (650-699) Teachers TV (650) Radio (700-799) BBC Radio 1 (700) 1Xtra BBC (701) BBC Radio 2 (702) BBC Radio 3 (703) BBC Radio 4 FM (704) BBC Radio 4 LW (705) BBC Radio Five Live (706) BBC Radio Five Live Sports Extra (707) BBC 6 Music (708) BBC 7 (709) BBC Asian Network (710) BBC World Service (711) BBC Radio Scotland (712) BBC Radio nan Gaidheal (713) BBC Radio Wales (714) BBC Radio Cymru (715) BBC Radio Ulster (716) BBC London 94.9 (718) Shopping (800-849) QVC (800) Price Drop TV (801) Bid TV (802) Pitch TV (803) JML Lifestyle (810) Interactive (900-949) BBCi Regional (950-999) also accessible via BBC One/BBC Two BBC One London (950) BBC One Channel Islands (951) BBC One East (W) (954) BBC One Northern Ireland (957) BBC One Scotland (960) BBC One Wales (964) BBC Two England (968) BBC Two Northern Ireland (969) BBC Two Scotland (970) BBC Two Wales (971) ITV regionals accessed via ITV1 London (not listed separately) Ulster STV Scottish East STV Scottish West ITV1 Wales ITV1 Border England ITV1 Central West ITV1 Granada ITV1 Anglia East Channel TV STV Grampian North Client Reading: HDTV Channels Shut Down: A Sign Of Things To Come?