Market Insight

Sky aims to re-establish itself as innovation leader with new Sky Q platform

November 18, 2015  | Subscribers Only

Ted Hall Ted Hall Director – Research and Analysis, Service Providers & Platforms

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  • The ability to access DVR recordings anywhere in and outside the home is among the most innovative and marketable features of Sky Q, an impressive ‘next-generation’ TV play from Sky.
  • The repositioning of Sky TV as a platform for accessing third-party apps, including YouTube and Vevo, and consuming personal digital content is a notable step change for the operator.
  • A pricing model is yet to be announced but Sky Q will be targeted at higher-spending customers, with Sky set to test demand for a new premium product tier.
  • Sky Q comes to market following renewed challenges to Sky’s innovation superiority from Virgin Media’s TiVo platform, BT and TalkTalk’s YouView, and Netflix.

UK pay TV market leader Sky today unveiled a new suite of premium products, grouped together under the Sky Q brand, designed to offer the most complete and joined-up TV viewing experience possible. The service will be made available to the operator’s satellite customers in the UK and Ireland in early 2016.

Aiming to deliver what Sky has branded ‘Fluid Viewing’, Sky Q is very much oriented around an anytime-anywhere content experience, filling in the gaps that exist in its current-generation Sky Plus HD platform. To achieve this, Sky has developed a whole new ecosystem of CPE, including: a 12-tuner, 4K UHDTV-ready, multimedia home gateway set-top box, equipped with a 2TB hard drive; a broadband router hub that can wirelessly stream content to thin-client Sky Q Mini boxes in other rooms; and a Bluetooth-enabled remote control featuring a touch-pad interface and (sometime after launch) integrated voice search.

Key selling points in terms of features include the ability to access recorded content stored on the main Sky Q Silver set-top box’s hard drive from anywhere in the home (Q Play) and outside it (Q Sync), via other Sky Q boxes or tablets (via the Sky Q app). Resuming viewing in a different room/on a different device has also been made more user-friendly thanks to the My Q page, which enables users to quickly find what they were last watching and pick up where they left off.

Sky Q is also being positioned as a more complete home entertainment, media and music centre. Sky has embraced third-party app provision, with YouTube and Vevo among the new services to be available via the platform. Users can also access their Facebook photos and stream their personal music to Sky Q via Bluetooth or Apple Airplay.

Key details that are yet to be announced are around pricing. Sky made it clear, though, that Sky Q represents a new premium product tier that will be targeted at a certain segment of its customer base—though it would not be more specific in terms of the size of that segment—the implication being that customers will be asked to pay more, in the form of either one-off equipment charges and/or higher monthly fees, to access the service. There were no announcements on 4K content for the platform either, only news that a range of sport, movies and entertainment will make up the UHDTV offering.

Rollouts of Sky Q to Sky’s other markets—Italy, Germany and Austria—are in the pipeline, though the roadmap was not confirmed.

Our analysis

Sky opted to play the long game in judging when to pull the trigger with its latest flagship service iteration and, from a pure user-experience point of view, Sky Q appears to be worth the wait. The challenge for the operator will be recouping the investment it has made in this new innovation cycle. Under pressure to continue delivering revenue and profit growth, against the backdrop of massive increases in sports rights spend, Sky will not be over-aggressive in pushing Sky Q. The rollout of its current-generation Sky Plus HD connected-TV boxes commenced in 2006 and these are still not in all Sky satellite homes (they are in seven million of them) nine and a half years later. Take-up of Sky Q is likely to follow a similar timeline—once the market for early adopters begins to tail off, we expect Sky to begin lowering the barriers to entry, through price drops, discounts and/or promotional offers.

In the meantime, the appeal of a new premium product to customers already paying high monthly bills for a Sky TV or triple-play bundle—some around the £100 ($150) mark—is questionable. Some may determine that they have reached a threshold for their home entertainment spend and feel somewhat sour if their loyalty is not rewarded with a low-cost upgrade to Sky Q. On the other hand, there is evidence to suggest that there is healthy demand within Sky’s customer base for subscription add-ons that significantly improve the TV experience. The success of Sky Go Extra, a premium multiscreen service costing an additional £5 a month that attracted 1.5 million subscribers in less than two years, is a case in point.

Sky has also touted the potential to attract brand new customers with Sky Q. While the product will certainly stand out as offering the most comprehensive TV experience available, the scope to sign up new satellite homes is limited in a market where premium pay TV has approached saturation point, something Sky acknowledged when it passed 10 million satellite subscribers in 2010.

From a functionality perspective, Sky Q is advanced and intuitive enough to fit its ‘set TV free’ billing. The ability to access recordings outside the home, in particular, is a highly marketable feature—Sky confirmed it had secured a raft of new rights deals, including agreements with all the major Hollywood studios, to bring Q Sync to market, work that will help set Sky Q apart from the competition. The intuitiveness of the Sky Q user-interface, influenced by Sky’s investments in Silicon Valley start-ups 1 Mainstream and Pluto.TV, give the product a further polish and a premium veneer.

Other aspects of Sky Q’s functionality mark a notable step change for Sky. Partnerships with third-party apps are a first, an acknowledgement from the operator that its users want access to content not available from Sky on their living room TV. YouTube and Vevo are popular but fairly safe choices as partners, with these apps serving customers’ demand for user-generated and web-exclusive video, as well as on-demand music. A partnership with Netflix was, unsurprising, not unveiled, with Sky likely to remain wary of bringing SVoD services that compete too closely with the operator’s own-branded channels on to its platform. What Sky’s new app partnerships represent, along with the provisioning for viewing of users’ personal photos and music, is a clear attempt to position Sky Q as more of a one-stop shop for its customers’ TV, video and digital-content needs.

Aside from the strategic and operational significance of the Sky Q launch, one of the product’s most important functions is to re-establish the dominant UK pay TV operator as an innovation leader. Sky bided its time as its rivals came to market with new set-top boxes and supporting platforms that compared favourably with Sky Plus HD. Virgin Media moved first, unveiling its TiVo-based hardware in 2010, bringing features such as a backwards EPG, unified search and content recommendations to UK cable customers. BT and TalkTalk followed in 2012 with YouView, a joint venture connected-TV platform with backing from the UK broadcaster community, which has served to make IPTV a legitimate alternative to cable and satellite by offering easy access to catch-up services alongside pay OTT content. The emergence of a new rival in this period, Netflix, put further pressure on Sky to evolve its core offering and reassert its position a best-in-class TV provider.

Rather than play its own ‘next-generation’ TV hand and embark on an expensive set-top-box replacement cycle prematurely, Sky adopted a wait-and-see approach, making incremental updates to Sky Plus HD. The older platform has proved robust enough to move with the times and provide a more on-demand-based viewing experience, but certainly it was high time for Sky to respond with a major service overhaul.

Delaying Sky Q has certainly not hurt Sky from a performance point of view. With growth within its DTH base becoming increasingly difficult to come by, the operator shifted its focus to selling more TV and communications products to its existing subscribers, and to competing at the lower end of the market with its pay TV ‘lite’, standalone OTT offering Now TV. The strategy has yielded solid results: The operator increased the number of individual products sold by 3.3 million in the 12 months to the end of September 2015, to reach a total of 38.8 million, and added 532,000 directly-served customers over the same period, to pass the 12 million mark. Fierce rival BT is among those to have also performed well in recent quarters, and though the telco’s aggressive premium sports-led strategy has likely slowed Sky’s momentum on the triple-play front, it can hardly be said to have caused a clear shift in the UK multiplay market dynamic.

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