The growth of Pay TV operator standalone OTT services – often known as Pay Lite or Skinny Bundles – is one of the most important developments in the TV industry this decade. It demonstrates the determination of traditional aggregators to fight against born-online OTT rivals like Netflix and, separately to this, make sure that they take a share of the low-ARPU pay market that has developed partly because of the demise of DVD rental.
In free-to-air homes there is often money on the table for some paid video entertainment, but not enough to fund a full-flavour Pay TV package. Services like Sling TV from DISH Network, NOW TV from Sky and, more recently, DIRECTV NOW from AT&T are designed to serve this market – and to provide a home for cord-nevers and cord-cutters.
The most ambitious of all the Pay Lite services is NOW TV from Sky in the UK. This is because of the extent to which Sky has turned an OTT entertainment package into a virtual service provider that competes against other traditional Pay TV services, which themselves were at the lower end of the price spectrum for television (like BT and TalkTalk). NOW TV has now morphed into a triple-play provider, offering broadband and voice (via Sky). It is different to your typical triple-play provider because the entire TV package is streamed over the Internet to connected TV devices (and is only available via streaming).
NOW TV is also notable for the extent to which it pushes its own devices (as well as being available on other connected TV and mobile devices). Sky has invested in the streaming set-top box maker Roku and Roku builds the ‘NOW TV’ branded devices that are widely available in UK retail. In supermarkets you can find the NOW TV boxes, given prominent display, often boxed with different NOW TV entertainment bundles.
Sky started to target the lower ARPU pay market even more aggressively last year, thanks partly to the new NOW TV Smart Box (developed by Roku). This combines streaming with a DTT tuner and so receives Freeview, the dominant free-to-air bouquet in the UK. Now you can move between terrestrial broadcast and NOW TV streaming without switching HDMI inputs.
Until now the NOW TV boxes have been what you might call supplementary devices, since many users would be watching Freeview (or the Freesat free-to-air satellite service) for their broadcast TV and then switching HDMI inputs to turn their attention to the NOW TV box (which also includes the most popular broadcaster catch-up apps, like BBC iPlayer). The NOW TV Smart Box is designed to be the primary set-top box for any television screen it is attached to.
Jonathan Broughton, Senior Analyst, Television Media at IHS Technology, believes this hybrid box means NOW TV is now a direct challenge to the bundles available from TalkTalk and BT (they both provide modestly priced Pay TV offers on a traditional platform).
Nevertheless, it was the launch of the NOW TV Combo offer in 2016 that really illustrated the long-term strategic ambition for NOW TV. This combines the new hybrid DTT/streaming Smart Box with broadband and landline telephone services in a no-contract triple-play offer. It confirms that NOW TV does not exist just to tempt low-ARPU users into Pay Lite on their way to full Pay TV and then a traditional triple-play.
Instead, NOW TV Combo provides a parallel path to triple-play for a different consumer target. It means Sky is carving out a permanent position for itself serving entertainment and communications to a marketplace whose defining characteristic is that they will not spend big on TV. This marketplace exists in parallel to the one where consumers are happy to spend big on TV. Sky saw a market gap below its traditional offer and has filled it.
Broughton at IHS believes the addition of fixed line products to the NOW TV offer furthers the segregation between this service and the single VOD catalogue design of rival services from Netflix and Amazon. He adds: “Monthly contracts to both broadband and telephony add a new dimension to short contract service hopping.”
Sky has drawn upon its existing scale and strength to develop NOW TV. Speaking at OTT World Summit last November, James Alexander, Strategy & Proposition Director for NOW TV, acknowledged that NOW TV would never have got access to the content it has without being part of Sky. He also emphasized the importance of using a brand that is distinct from the original Pay TV brand. “The people who take the service look and feel like Sky customers but their attitude to Pay TV is different; they have a different mindset. Through a separate brand we can go after those customers and give them a proposition they can really buy into.”
Like at Sling TV (the Pay Lite service from DISH Network – and you can read some interesting insights from Sling’s CEO here), control is a big part of the NOW TV marketing message. Alexander says the market differentiator is the marriage of Sky content with the low cost and flexibility of OTT. “The service is for customers who are reluctant to commit to full Pay TV and who feel more comfortable with a more flexible approach.”
He thinks there has probably been a latent demand for this kind of service for years or even decades – and technology and commercial developments have finally made it possible.
Alexander says there is no cannibalization of the traditional Sky satellite service since NOW TV is ‘self-segmenting’ and marketing is aimed at Freeview homes and the company never advertises in pay channels. “NOW TV provides growth for the Sky group as a whole, rather than taking from Sky,” he declared. In fact, he thinks there is too little cannibalization! He admits: “We should be able to take more of the people that leave Sky than we actually do.”
Photo: NOW TV advertises its broadband offer
More reading:
We should compare Sling TV to Spotify rather than Pay TV services like Comcast
‘How device innovation is changing the Pay TV landscape’
This new Videonet report investigates how Pay TV operators can segment the consumer market more precisely and deliver service and pricing innovations thanks to a new breed of customer premise equipment (CPE) and a more agile Pay TV device ecosystem. It considers Pay Lite services and OTT onboarding, the potential for tailored CPE bundles, and implications for content security. There are insights from DISH Network, SES/HD Plus, Sling TV, NOW TV (Sky), Ampere Analysis, Futuresource Consulting, Parks Associates, Strategy Analytics, IHS Markit, Pay-TV Innovation Forum, NAGRA, SoftAtHome and others.
Download report here (free).
