BSkyB Ready For DVR Blast Off In Britain

British satellite TV provider BSkyB is entering a critical few months for its Sky+ DVR (digital video recorder) offering.

The News Corp [NYSE: NWS] subsidiary aims to triple the number of Sky+ users in the next eight months. BSkyB has around 100,000 Sky+ subscribers, but with the operator now waiving monthly subscription charges to premium customers, it hopes to hit the 300,000 mark by the end of June 2004. To help boost sales of its DVRs, BSkyB is spending GBP20 million ($33.4 million) on a marketing campaign to sell users the benefits of Sky+. It is the biggest campaign since Sky Digital was launched five years ago.

Brian Sullivan, director of new product development and sales at BSkyB, is a big backer of the DVR concept. “I believe DVRs will revolutionize television across the world, although it will be a quiet revolution. This is a very positive change in the way we consume TV. If you have Sky+, you never have to turn off the television without feeling satisfied because there is always something that you want to watch.”

According to BSkyB research, once a home has a DVR, the way people watch television changes dramatically. “People with Sky+ tend to report an increase in the amount of TV they watch, with 50 percent saying they watch a higher number of hours than previously. The average number of hours watched per week in a Sky+ home is in excess of 30, but the important point is that these are 30 hours of viewing which they are very happy with. There is no compromise viewing. More than half of the viewing is still on ‘live’, rather than time-shifted, TV,” Sullivan said.

He continued: “We are also finding that viewing is spreading over a much wider and broader range of channels. The viewing of non-terrestrial channels is increasing in Sky+ homes, particular movies and basic channels as well as sports. Sky Digital delivers all of this content and, with Sky+, our customers now have the tool to access the programs they want with almost pinpoint precision.”

Selling DVR

While levels of customer satisfaction for DVR may be high, its impending success may not be cut and dried. According to media analysts, selling the benefits of DVR will be a tough task for the operator. Hamish Tadgell, a media equity analyst at Goldman Sachs JB Were, observed: “It is not a product that naturally people understand. It is a product you really need to view and have a hands on experience with it, to understand the full benefits of it. There is a large education process required before you see take-up really start to accelerate. From a viewing perspective, it is quite a radical change in the way in which people watch television. But, I think the thing that is going to drive it is education, familiarization of the product by the consumer and getting the costs of the product down.”

Matthew Walker, a media equity analyst at Lehman Brothers, added: “It seems to me it is quite a difficult product to convey to someone who doesn’t have it without physically showing it to them.”

Selling Sky+ has been difficult. While BSkyB has over seven million direct-to-home subscribers, it only reached the 100,000 mark for Sky+ in June this year. One of the major barriers was the GBP10 ($16.7) a month subscription charge. With certain BSkyB subscribers looking at a one-off cost of around GBP250 ($423.5), the proposition now looks a lot more attractive. BSkyB has also hit numerous subscriber targets in recent years, so 300,000 DVR customers by June next year does not seem unreasonable. However, even if it hits that target, there is plenty of room for growth. On current estimates, 300,000 Sky+ users equates to just over 4 percent of BSkyB’s overall subscriber base. So, even a tripling of those numbers is really only making a small dent in the market, although it would still indicate a significant ramp-up from previous growth rates.

BSkyB has been one of the most progressive satellite pay-TV operators in Europe. But compared to U.S. satellite TV players, it still has a way to go in the DVR market. In particular, EchoStar Communications [Nasdaq: DISH] has been a particularly strong performer here. The U.S. provider announced in September that it had sold one million DVRs to its customer base. EchoStar has even been giving away DVRs to entice new customers in recent promotions. Its main U.S. competitor, DirecTV, has also used aggressive promotions involving DVRs to gain new consumers. In one promotion, DirecTV was a offering a $99 promotion to new customers. Included in this was installation of DirecTV into three rooms with a DVR in one room. According to Tom Watts, a satellite equity analyst at SG Cowen, the savings here is substantial. “The subsidy for the promotion was substantial. The first box with the DVR capability required a subsidy of $125 to $140. Each additional non-DVR box required a subsidy of $150.”

UK Dynamics

The situation is very different in the UK, where none of BSkyB’s competitors are deploying DVR yet. Tadgell commented: “In the UK, there is no real other competition. The need to heavily subsidize the box and give it away is much reduced. The threat would come if someone else was to offer a PVR [personal video recorder]. In my view, that is a minimum of two years away, and it is probably going to be someone like Freeview. Freeview [does not] have an IPG [Interactive Program Guide] at the moment. If they get an IPG, they have the potential to offer a PVR product. Maybe part of BSkyB’s thinking is to get a strategic front running position ahead of anyone else coming into the market with a PVR product.”

–Mark Holmes

(Robert Fraser, BSkyB, e-mail: [email protected] )