OTT is not a “rational” alternative to pay TV, says Sky Deutschland’s Sullivan

OTT does not offer a realistic rational alternative to established pay TV offerings and is unlikely to do so for some time, according to Brian Sullivan, CEO of Sky Deutschland.

Speaking on the CEO panel at the CTAM Europe EuroSummit in Barcelona, Sullivan said that Sky had embraced OTT as a distribution mechanism, which had attracted its offering to a younger audience. “That said, I have a very hard time understanding the economics of standalone OTT services. There are 62 in Germany…and most of them are running at eight-digit losses,” he said. Sullivan said there is “absolutely no price elasticity whatsoever” in OTT and rising costs could not be compensated by higher consumer prices.

Sullivan said that “we’re fooling ourselves if we think there is enough bandwidth capacity” to support unlimited OTT.

Sullivan said that the supposed reluctance of Germans to pay for TV is based on a set of myths. He said that people were less inclined than others to take impulsive purchase decisions but were willing to pay, and in many cases pay more than other European consumers, for TV services.

Sky Deutschland has improved its performance by improving execution, said Sullivan. He said that the German market was more stable economically than other European markets, which had given the operator security.

Sullivan said there was also “a generational change” going on in Germany that meant that Sky Deutschland viewers were on average now more than seven years younger than they were a few years ago.

Sullivan said the German market was highly competitive, with well funded public broadcasters and two commercial broadcasters that had sustained the free to air model better than peers in other countries.

Referring to the Bundesliga, Sullivan said Sky hoped for “rationality” in the market. He said there were a limited number of people who were willing to pay for football and there is a limit to the costs that pay TV broadcasters can sustain. “The sports market never works rationally and I’m sure there will be competition,” he said.

Speaking on the same panel, Telenet CEO John Porter said that “free riders” were a problem for cable and that he considered bandwidth caps to be a growing necessity.

Porter said he was confident that Telenet’s broadband and pricing strategy would act as a constraint on the ability of OTT services to make inroads in the Belgian market.

The Belgian cable operator has responded to challenges in the market by reducing the number of key product lines to six – two main TV offerings, two internet offerings and two telephony services, according to Porter.

Porter said that research had show customers for mobile were satisfied with two offerings and Telenet had applied this approach to broadband too.

Telenet’s launch of two TV services – Rex and the higher tier Rio – had taken this approach to TV. Porter said that Telenet would contin,ue to differentate itself in the entertainment space and would look to differentiate itself through the launch of applications and its TV everywhere offering.