A smarter version of Now: Sky and the new "squeezed middle" of free-to-air

16 Feb 2016  |  Matt Walters 
A smarter version of Now: Sky and the new "squeezed middle" of free-to-air

The launch of Sky's "most advanced" Now TV box this year has Decipher's Matt Walters wondering: where will it sit in the market?

"This is something we're really excited about," Jeremy Darroch said - perhaps revealingly - at Sky's Q2 2015/16 results presentation last month.

"There'll be no switching between inputs or sources, and it means this will become the gateway to our customers' pay and free-to-air viewing."

Amidst discussions of "Fluid Viewing", in-home streaming and "pay premium" price points, these comments from Sky's CEO were some of the few that didn't relate to the new Sky Q. Yet these few words could yet have a more far-reaching and longer-term significance than anything said in the fluorescent-tinged fervour of the last three months as we've waited for the latest version of the Sky pay TV platform to come to market.

The subject of Darroch's attention was the launch, "later this year", of a third-generation streaming box from Now TV - the unbundled, "pay lite", over-the-top streaming service Sky launched back in February 2012 comprising a selection of its Entertainment, Movies and Sports channels. The content is available via a dedicated but relatively inexpensive piece of consumer hardware (the Now TV streaming box) or across a number of other third-party devices (mobiles, tablets, smart TVs and Apple TV boxes among them).

The initial appeal of Now TV, and other such streaming devices, has been the ability for consumers to connect these to a television perhaps previously unconnected to the internet - either by choice or by technical limitation - and make it "smart".

Sky has promised that this new third-generation device, going under the working title of the Now TV Smart Box and following hot on the heels of August's second-generation release, will be its most "advanced" yet. Rumours of 4K streaming abound.

Yet Darroch's words speak for themselves: "This is a major development. For the first time, it includes a terrestrial tuner."

We'll return later to this very point.

Since its arrival four years ago, Sky has been extremely guarded about revealing exactly how many of its 11m or so reported television homes take the Now TV service, or how many Now TV devices are at play in the UK market - but there are a few things we do know and others we can make a well-educated estimation about.

The ability to access the Now TV service as a customer on devices other than the Now TV box itself means, perhaps unsurprisingly, that Decipher's data indicates there are more Now TV subscribing households than those with dedicated devices in the UK market.

Both have grown considerably since launch, though that growth is now slowing: the latest available data from our Mediabug research estimates that there are just over 737,000 Now TV subscribing households across all devices, with upwards of 644,000 Now TV streaming boxes, nationally.

Whereas Sky has previously been reluctant to talk numbers in relation to Now TV, at last year's Future of Broadcasting Conference it did say that 90% of Now TV customers had not considered Sky's traditional pay TV offering before signing up.

Through Now TV, Sky has heretofore succeeded in attracting pay, albeit "pay lite", customers where it hasn't broken through before - undoubtedly pinching the odd, perhaps "cord-shaving", subscriber from a direct rival, but also - crucially - growing pay TV amongst previously free-to-air homes.

It's an all too easily forgotten fact that, despite all the column inches discussing Sky, BT, Virgin Media and TalkTalk (amongst others), approximately 49% of UK TV homes take free-to-air television platforms (chiefly Freeview, Freesat or free-to-air YouView) as their primary television service, according to Ofcom's most recent data.

And the free-to-air environment has been an intriguingly dynamic one over the last few years, with the rise and increasingly mainstream adoption of internet-connected set-top boxes (and, newly, integrated Smart TV offerings) from the free-to-air platforms.

Starting with the arrival of YouView and the launch of Freesat's Freetime in 2012 to last year's release of Freeview Play (the connected Freeview offering), platforms have harnessed the power of mixing traditional delivery mechanisms - in these instances, DTT and satellite - with IP connectivity to offer live free-to-air channels with a range of on-demand content, while since its launch in October 2014 EE TV has continued to innovate in terms of first- and second-screen and "in home" functionality.

All of this brings us to the question of what position the Now TV Smart Box, with its terrestrial tuner and - in Jeremy Darroch's words - its ability to bring together "60 free-to-air channels with the best of Now TV pay content, in a single user interface", will occupy in the UK market. The closest Now TV has come thus far to offering such an experience is to a smart TV user with access to both the Now TV app and free-to-air channels - albeit, not on the same interface.

The already narrowing gap between pay and free-to-air television has just got even narrower."

This new device, developed in association with Roku, will be the manufacturer's first "hybrid" set-top box, enabling operators (in Roku's words) to "bridge the gap between linear broadcast and streaming TV services". Given that Sky has Now TV-equivalent service and hardware offerings in Italy and Germany under the banner of Sky Online, it is quite conceivable that the UK is just the first stop in a wider roll-out of this new device.

One can view Sky's announcement, in the short term, at the extremes: a defensive hedge against the continued rise of internet-connected set-top boxes from the free-to-air platforms (and new entrants, such as Vodafone, expected later in the year), or an aggressive play for new (or "cord shaving") "pay lite" customers in free-to-air homes.

In my view, a wider perspective is needed: Sky is squeezing the middle between pay TV on the one hand and free-to-air on the other, offering an equally attractive proposition to "cord shavers" seeking less expensive pay content and pure free-to-air homes considering - but perhaps previously not following through - on a pay TV subscription.

Up until now, consumers of FTA platforms have had to choose between the cost of a substantial initial outlay for new consumer hardware or - as, in the case of YouView, has been more commonly the case - subsidised hardware through a broadband subscription.

This will be the first time the full Now TV service will be available on a set-top box that receives both digital terrestrial and IP - the Now TV service on YouView only offers access to on-demand Movies. Not only that, the new device is likely to be available for a fraction of the price of a platform set-top box, albeit perhaps without a PVR capability and almost certainly priced at a level similar to other competitor streaming devices.

All of the above isn't to argue that the Now TV Smart Box's launch will be immediately transformative.

Existing Now TV box owners may not immediately make the switch to a new piece of hardware, not least because of the expected higher price point. Existing Now TV customers may continue to consume the service on their current device of choice. And, for all the talk of "cord shaving" and "cord cutting", there is a real "stickiness" among customers of pay and free platforms, who on the most part demonstrate a real inertia in moving from one to the other.

But Sky's move is a long-lasting footprint in the sand: this new hybrid device will offer cheap, convenient access to free-to-air television, with the ability for Sky to upsell willing customers to "pay lite" packages with relative ease. The already narrowing gap between pay and free-to-air television has just got even narrower.

At a time when it's all too fashionable to proclaim the death of traditional television as we know it, it's ironically a small streaming device from an established pay platform that may provide a new and intriguing shot in the arm for free-to-air television in the UK.


Matt Walters is a senior consultant at Decipher, and tweets at @matthew_walters. He will be discussing the evolving free-to-air landscape, as well as other significant developments in the UK TV industry, alongside Decipher MD Nigel Walley at Decipher's next round of open-invite interactive media education sessions, taking place in London and Manchester in early March. Click here for further information.

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