Discontented: The story behind the Sky and Discovery row

01 Feb 2017  |  Raymond Snoddy 
Discontented: The story behind the Sky and Discovery row

The dispute between Sky and Discovery is unlikely to be the last content negotiation where teeth are bared and insults fly, writes Raymond Snoddy

By historic standards – at least for tennis fans - the moment when Roger Federer saw off a ferocious challenge from Rafael Nadal to win the Australian Open, his 18th Grand Slam title, was one to savour.

It looked as if Nadal was cruising to victory in the fifth set and then Federer at the grand old age of 35 wiped his younger opponent off the court.

Exclusive coverage reached a Eurosport record of 800,000 viewers in the UK and 20.7 million saw the final via Eurosport and Discovery-owned free-to-air channels across Europe.

At the moment of Federer victory the camera zoomed in on maybe the best male tennis player of all time and caught the emotion, the joy, the moist eyes.

And then something extraordinary happened.

Across the screen scrolled the following words: “If you are a Sky customer we regret to inform you that from February 1st you may no longer be able to receive this programme or any Discovery channel including Eurosport.”

For further information viewers were urged to get in touch with Sky, a message that was reinforced on air by the commentators.

What was going on? One of the biggest contractual disputes between programme suppliers and their broadcast platform in years, that’s what was going on.

Was this just the usual bit of brinkmanship between Sky and its programme suppliers before a compromise deal is thrashed out at a minute to midnight, just like the closing of the football transfer window when deals finally get done?

Something more serious seemed to be brewing which could have taken no less than 12 Discovery-owned channels off Sky.

In the end last minute talks were called and a deal was indeed done - an agreement that Discovery hailed as a victory for passionate television fans who did not want to lose their channels.

Discovery claimed that in the end they got a better deal out of Sky.

What the row certainly highlighted is the importance of exclusive content and how that content is ultimately valued - and this is unlikely to be the last content negotiation where teeth are bared and insults fly.

Discovery had an interesting series of claims to make based on a 10-year perspective. It says it is now paid less by Sky than it was 10 years ago while Sky households are paying “so much more” than they did in 2007 - although a lot of that rise comes from the huge increase in Premier League costs.

Perhaps more relevantly, Discovery claims it has increased its share of viewing on the Sky platform by more than 20 per cent while also increasing investment in original content by more than 30 per cent.

Discovery pulled out the stiletto to link the row with the £18.5 billion takeover by 21st Century Fox of the 61 per cent of Sky it does not already own.

Sky, argued Discovery, was using its dominant position in the marketplace to further its own commercial interest over those of viewers and independent broadcasters.

Discovery also expressed concern that with the Fox deal “Sky’s market strength and incentive to disadvantage TV content providers will only increase.”

In Germany Discovery Networks Deutschland was also threatening to end distribution of its channels on the Sky Deutschland platform a threat that has now been removed.

Sky chief executive Jeremy Darroch publicly entered the fray with a stinging attack on Discovery claiming the real issue was over the quality of their channels.

In a world of big budget drama, Darroch said, “re-runs of Animal Planet just aren’t going to cut it any more.”

Sky said the main Discovery channel was down by a third over the past 10 years with the performance in on-demand down by a similar amount.

Darroch added that Discovery was “not hitting the sort of big shows that people want to pay for” and that if Discovery left the Sky platform the money would simply be used for something else.

Strong words to have to swallow at the last moment.

For Sky the timing of the row appeared to be a little unfortunate – just as Culture Secretary Karen Bradley ponders whether or not to refer the Sky ownership deal to Ofcom for a public interest investigation.

It was the latest in a number of small clouds on Sky’s horizon and even though a deal has been done Sky will almost certainly have to pay more.

Despite strong results for the six months to the end of December with a 12 per cent rise in revenue to £6.4 billion - 6 per cent on a constant currency basis - profits fell to £679 million, down £65 million, albeit after absorbing £314 million in extra Premier League costs. In the six months Sky also added 500,000 new customers, more than the previous year.

And yet one of the key indicators of Sky’s long-term health, the churn rate is up to 11.6 per cent compared with less than 10 per cent a few years ago.

Darroch blames the “highly promotional environment” – aggressive deals offered by Virgin and BT - and the rise in broadband customers who have a greater propensity to seek better deals elsewhere and churn.

A permanent loss of 12 Discovery channels would have led to a further leakage of subscribers, certainly among tennis fans, because Virgin and BT have separate deals with Discovery.

The decision to offer Sky channels without a satellite dish could, however, help to bring in new subscribers.

Next up in March the first round of bidding for a new UEFA Champions League contract – something that Sky will have to go for and could cost it considerably more than BT’s current £900 million deal.

Guess what, UEFA has apparently been expressing unhappiness at the lack of exposure the Champion’s League has received as a result of the BT deal.

What a surprise that must have been to them.

Sky could put the old Sky plus free-to-air ITV deal together again but probably at an overall cost of more than £1 billion – some more costs to absorb.

The chances are that Bradley will refer the Fox deal to Ofcom to avoid the odium of immediate acceptance without independent scrutiny- causing at the very least a period of uncertainty.

But right now, whatever Sky is saying in public, there must be an internal sigh of relief that a Discovery-encouraged Twitter storm over the disappearing channels is over.

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