Market Insight

Sky aims to take a bite out of UK film retail market

April 02, 2014


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UK pay TV operator Sky intends to launch a digital retail service in April 2014, providing its 4.5m active Sky+ HD customers with the option to purchase films via the Sky Store interface. 'Buy & Keep' films will be available in HD for between £7.99 (library titles) and £13.99 (latest releases), with DVD versions of the titles shipped to consumers upon purchase. Consumers will be able to download and manage the digital versions of their bought titles via the Sky+ HD Planner. Roughly 200 titles will be available initially via the service, from Fox, Universal and Warner, with more studio partners to be added in the future. Service will not (at least initially) support digital rights system UltraViolet.Customers will be able to archive bought movies to free up space on their hard discs and then re-download on request. Although initially targetting the set-top as the main distribution hub, Sky said it would 'connect the dots' to allow other devices to be used for movie purchase. Customers can continue to use the service providing they have a £10 a month HD subscription. Churned subscribers that re-join the platform will be able to access all previously-bought movies.

Our Analysis

Sky is one of a growing number of pay TV operators looking to play a significant role in the film retail business. Leading US cable company Comcast launched services in the US at the end of 2013, and UK telecoms firm BT launched download-to-own in the UK in February 2014. Sky is joining them, and is looking to take a slice of the UK retail film market, which while in decline, still represents a £1.4bn per-year industry.

Experience from Comcast’s launch of download-to-own films earlier in 2014, and the buy-rates it achieved, suggests that the launch of Sky’s on-demand service has the potential to grow the UK download-to-own market by as much as 7% in 2014, adding 0.4m transactions and £4.1m to the sector. Beyond 2014, as Sky increases the range of devices on which the service functions, the number of participating studio partners improves and as the installed base of connected set-top boxes rises still further, IHS expects that Sky will become a major fixture in the UK download-to-own space; however, to really excel in the space and take a more significant market share, Sky will need to overcome a number of obstacles which have previously hindered the development of the digital space, notably:

Ensuring that consumers can access their purchased films across any of their devices: One key issue faced by consumers buying digital titles is the limited array of devices which they may be able to watch on. A consumer purchasing a title from the leading digital retail store iTunes can only watch via a limited array of connected devices – primarily proprietary Apple devices. Sky’s advantage here will be if it can ensure that consumers can access their previously purchased films via any of their main connected devices.

Promoting digital ownership as a concept: Many consumers inherently distrust digital retail – the lack of a tangible purchased item, the frequent absence of ‘extras’ in digital titles, combined with insecurity around what happens to a digital purchase if the consumer churns from the service which supported their purchase, means that consumers frequently perceive digital versions as somehow inferior to their physical counterparts. Sky’s approach thus far has been to commit to sending a DVD in the post to complement the digital version available via the Sky+ HD box. This is a positive move (although not a new strategy – US cable company Cablevision tried, and later abandoned, a similar approach in 2008) in terms of prompting consumption, as it addresses the symptoms of the problem; however tackling the issue at its root cause will be important for long-term sustainability of Sky’s digital ownership model – this may mean providing guarantees around access to previously-purchased content and promoting this fact to consumers.

However, there is an inherent conflict of interest here. One element of Sky’s strategy revolves around stabilising its subscriber base. Consumers who have churned from Sky (losing access to the digital versions of their purchased films) will be able to regain access to the digital editions of previously-purchased films if they rejoin the pay TV operator’s services later – acting to promote re-subscription. Sky will have to weigh up whether the additional purchases prompted by improving the availability of titles post-churn–combined with the ongoing marketing effect of consumers revisiting their ‘Sky’ library of purchased titles outside a subscription–will outweigh the additional distribution costs incurred by supporting downloads for non-subscribers and the loss of the re-subscription potential which a library available only to Sky customers would result in.

That said, by launching in the digital retail window, Sky further consolidates its content lead over rivals, with major releases available from as early as three months after theatrical release, through to the end of the first subscription pay TV window at 20-22 months after theatrical release. And while the revenue upside may be minimal compared to Sky’s wider subscription business, the launch adds yet another tool to Sky’s already formidable content arsenal.

 

Geography
UK
Organization
Sky
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