Sky-Discovery carriage dispute a sign of things to come
Details
Michelle Clancy
| 05 February 2017

The eleventh-hour settlement of the high-profile carriage dispute between Sky and Discovery is not likely to be the end of the discussion as to what those channels are really worth.


The deal means that Sky subscribers will continue to enjoy Discovery’s bouquet of 12 thematic genre channels,*yet it must be noted that according to Futuresource Consulting analysis, comparing data for the last seven months of 2016 with the same period for 2014 shows that Discovery’s ratings (excluding Eurosport) have declined, while Sky’s share of eyeballs has remained the same. That backs up Sky’s original beef with the programmer.

“The disagreement was simple – Sky said Discovery’s viewing on its platforms had fallen and it did not want to pay what was being asked to renew their long-term carriage agreement,” said Futuresource analyst John Bird. “Discovery said it was being paid less than it was 10 years ago, despite Sky subscription price rises and a claimed 20% increase in viewing of its channels on Sky platforms (the acquisition of Sky Germany and Italy in this period may well be a factor behind this assertion).”

But Bird added that the falling viewership was “almost certainly” due in a large part to the cannibalisation impact of on-demand viewing on traditional linear multichannel TV.

According to the latest survey in the Futuresource international consumer research program Living With Digital, 12% of UK respondents now say that SVOD services are their most frequently viewed video platform, up from 6% a year earlier, compared with 15% for pay-TV channels.

In terms of real numbers, there are now approaching 6 million Netflix and 4 million Amazon Prime Video users in the UK (many taking both).

“As total TV viewing hours are relatively flat, it is inevitable that viewing of these services (as well as other alternative platforms like YouTube) will be taking share from traditional linear TV channels,” Bird explained.

To ward off the impact from defecting viewers, Sky has made more content available on-demand and digitally, with an array of options that include Sky Q, Sky+, Boxed Sets, Sky Store, Sky Go and Sky Now, the latter of which will carry Sky’s full content portfolio online from 2018. Also, Futuresource said that viewing of Sky Atlantic (which carries HBO content) is 75% on-demand.

In the future, Discovery may need to negotiate carriage compensation that takes into account digital statistics within Sky’s various ancillary platforms.

One way that Discovery can make its case is, of course, live sports — an arena that has long been the saviour for programmers looking to up carriage fees. Discovery, whose largest shareholder is John Malone (Liberty), acquired the 49% of Eurosport it did not already own from TF1 in July 2015 for €491 million. It offers exclusive rights to the Australian Open tennis and €1.3 billion for Olympics rights for 2016-2024.

Sky’s appetite for investing in sports content may be sated for a while however: it saw a 70% rise in the price of Premier League rights in the last round as a result of competition from BT Sports. As a result, Sky’s profitability dipped 9% in the last half-year.

“[It] will be looking to keep its results up, especially as it has accepted a takeover bid by 21st Century Fox which values the company at £18.5 billion,” Bird said. “Hence an understandable reluctance to pay more for channels which it claims are being viewed less.”

Nonetheless, enough UK citizens watch Discovery for the potential of a blackout to be concerning, Bird added.

“Although distribution deals with BT and Virgin Media (owned by Liberty Global) remained in place, a blank screen on 10 million+ Sky boxes from 1 February would have left a big hole and it was clearly in the interests of both companies to reach agreement he said.