In part two of our Q and A with Sky TV CEO John Fellet, he discusses Sky TV's plans for the Ultra Fast Broadband network and considers whether premium content will be critical for its uptake.
Do you agree that consumers will only pay for services on the fibre network paid for by the taxpayer (the UFB) if they have access to premium content - and at the moment most of the premium content – ie the rugby, which this country is mad about – is controlled by you?
Well, I wish it was. All the All Black games are also on free to air.
Two hours later. What about Super 15?
By the way, we invented that. It’s not like that was out there. We went with the pay TV operator in South Africa, the pay TV operator in Australia, and Sky sat down with the three rugby unions and said how about this idea. Back then it was Super 12 – a twelve team competition – [we said] all of us will show every game live, we’ll pay you x number of dollars. It didn’t exist before Sky came along and it wouldn’t exist without pay TV.
If pay TV was outlawed tomorrow, there wouldn’t be a mechanism to be able to fund that sport because it can’t rely just on advertising revenues. If it could have, TVNZ probably would have done it. It needs subscribers happy to pay cash.
Do you believe the video and demand and sports programming is essential to get uptake on UFB?
Look at the most successful internet plays for video content, it's Netflix. No sports, no recent movies and no recent television series. It’s almost the anti-premium. What they’ve figured – and I think they’re brilliant by the way – is buying out a pool of content and coming up with a new way of doing it. Where they say 'you pay one monthly fee and I’ll give you a key to my video rental place and you come in and take anything you want'.
But they say you’ve signed up all the rights in this part of the country. That’s wrong?
That’s wrong, let me make that perfectly clear. They have a right called subscription video on demand. Say you own all the ‘Shortland Street’ episodes – and I’d go to you and say 'I will pay you $400 for every episode to have all your episodes sit in the pool of content'. And I’m going to turn around and allow subscribers, hopefully as many as I can, to pay me so much a month to access that pool. And then you go out there and do that with a whole string of various content holders.
That right is known as subscription video on demand, I don’t have any of those rights. The studios won’t let me buy rights unless I've got a way to exploit it. Even if they did, you can’t get an exclusive. Netflix does not have any exclusive content whatsoever.
So why did Brent Ayery (from Netflix) say content deals are keeping him from NZ?
He didn’t say Sky, what he’s talking about is the fact that he’s got to sit down and negotiate with a bunch of studios and it takes him just as much energy to do NZ as UK or Canada. Well I can tell you what markets I’d rather be in.
But is video and sport necessary for uptake on UFB?
Let’s take a look at the (Commerce Commission) survey that I saw... what I find interesting, and I was with Sky at the beginning, when we went out there and said ‘would you be willing to pay $29.95 or something like that for three channels a month’, we had two percent said yes.
Even more recently, our most successful thing we’ve ever done, the Soho channel in MySky. When we went out and surveyed the consumers there’s this tendency to say ‘no, I wouldn’t pay extra’, but that’s not right. On Soho we have 60,000 and growing. [It’s not] until they see it, until their neighbours start talking about it.
The same thing with MySky. I would argue it is the most effective consumer good... that category is known as digital video recorder. I think that’s the most effective, successful consumer electronic good in the last four years and yet all of our surveys, when we originally went out, said no one would pick it up. More importantly, it’s not like my content’s not on the internet – we stream all of our sports channels now over the internet.
But will it be what is required to get people to take up fibre services?
You’re saying people don’t know what they don’t know until you give it to them. So the (ComCom) survey doesn’t mean anything?
I’m just saying its tough to survey. If we would have followed the Roy Morgan approach we wouldn’t have launched Sky in New Zealand, because all of our surveys always indicated a pessimistic outcome.
Its not just the survey that’s informing this, it’s overseas experience. In Singapore, for example, it wasn’t until they got video content, that people started to pick up those services. We know that people often have Sky dishes before they have internet connections.
That’s probably only becasue the internet, trying to view channels at this stage, and this development is pretty difficult.
There are pretty hefty the fees for Sky services - $45 (a month) for a basic service and if you’re a rugby fan you’ve got to pay $34 on top of that. I know that you’re a business and I understand that your first interest is toward shareholders.
I think you are misreading that. You’re right, my first interest is towards shareholders. How do I do that? By trying to service customers. And unless I can convince the customers as to good value... Our penetration is growing every month, our churn is dropping every year. How does that indicate any indication of bad value? I would argue the opposite.
It indicates a need and a desire in the community to have the content that you have very successfully built up. I’m not in any way decrying your ability to create a very successsful, very profitable business. I’m not saying there is anything intrinsically wrong with that, you are doing your job.
So what are you saying?
I’m saying that there is a taxpayer funded network called the UFB and there is a concern that people are not going to take up those fibre services because they can’t afford to pay for them and pay for a Sky subscription.
All we can do is make it available. Our new box I think will make inroads in there. We are looking at the next generation decoder box, is built with the UFB in mind. We think there are all sorts of innovative approaches to it.
For instance right now, if you want to know what’s on Sky, you’ve got to look at this grid (the programme guide) – not a great navigation tool. Certainly not a great content discovery. But on the internet, if you look at Netflix and all these other ones. They have far enriched content discovery. If I had that in my new box on my UFB, I’d guarantee I’m going to get a lot more subscribers.
On top of that the internet will allow me to do a couple of things, look at the long tail – for the forseable future if you want the Discovery channel and you’re happy just watching the Discovery channel, your approach is the way to go. In the future I think people will say ‘I want episode 4, season 3 of Friends’ – I can’t do that on the satellite, I can do that on the internet.
This is what we will see in a new set top box? When is this coming to the market?
It’s already on the drawing board, my guess is this is about 18 months away. The UFB is going to take a while to roll up, so if I had a new box now to take advantage of the UFB I’m not sure there would be a huge take up. But the more the UFB rolls out that box will be great for that.
Do you think that people are going to want to pay for a UFB connection and a Sky connection?
I think so, the majority of my subscribers have both internet and Sky. iSky is taking off. iSky is what is known as catch-up TV. It’s sort of what I was talking about, that linear evolving to a pool. In that case typically whatever is shown in last week on the Discovery Channel is in this pool, if I can clear rights – I can’t clear rights on everything.
If I can figure a way not to even use a decoder box, because with iSky you don’t need a decoder box. You need to be a Sky subscriber to get it, but you just do it over the computer and there’s no decoder box involved and that changes the economics of it quite a bit as well.
I still think that the vast majority of people need that box that interconnects the internet to the television set. Netflix can’t do that unless it's a smart telvision. In the future you’re going to see smart TVs with Sky applications.
The Chair at the Commerce Commission conference said he thinks Sky’s is the business case most under threat by UFB.
In every market that’s been the case.
And that’s becasue a rugby union could skip the middle man and go straight to consumers, but I struggle to see why they would do that. Why would they [rugby union] – do everything, when you film and distribute their games very well and pay them a lot of money for the privilege?
Only if they thought they could get a better return. The National Basketball Association, the Major League Baseball Association does that.
You must have rights to that Super 15 competition, if you invented it.
They could take it away tomorrow and call it something else.
During the panel discussion you said ‘it’s not about what’s right for the consumer, it’s who’s got the best lobbyist.’
That’s taken out of context. They said what would be your reaction if I said tomorrow there’s an enquiry. And I said ‘it would be dissappointing because it would convert from the consumer making the call, and the consumer is what has made us. All of a sudden the fight shifts.
All we care about is consumers – what can we sell them? What is out there that they don’t have that they don’t have, that they would like to have? How much are they prepared to pay for it.’
Under a regulatory apporach that goes out the window. You are more concerned about getting the best lobbyist and the best attorneys to file papers, so that was taken out of context.
Although you are credited with having one of the best lobbyists in Parliament.
The difference with us is that we try to get our story out there. We’re happy to meet with you anytime and I’m honoured because I saw some of the stuff that was written earlier and it was just wrong - Sky controlling these content rights is stopping internet development. Jeez, quite the opposite, and I would hope that I could work with ISPs to develop packages and the internet will give me more flexibility. Right now my contracts are structured by the studios and the content providers on how I can layer things.
The internet is a brand new world.
See part of one of Q and A with John Fellet here.