Learning to love pay TV

German consumers are beginning to warm to pay TV, and Sky Deutschland stands to benefit, writes Kate Bulkley

The annual Cable Congress is always a place for announcements, predictions and industry chatter, but what was The Big Takeaway from this year’s event in Brussels? For me it was Mike Fries, CEO of Liberty Global, saying that the inexorable pursuit of faster broadband speeds is no longer top of the his agenda. Liberty, he said, plans to “take a breath” at 50Mbps as its basic offering.

Fries also talked about the rollout of   the Horizon set-top box. The future, it seems, is no longer about speed; it’s about multiscreen.

How interesting: a cable guy admitting to slowing down on the power of speed as cable’s primary USP. But while cable operators are busy launching multiscreen services, their satellite competitors are also getting in on the act in a big way – and leading the group in Europe is Sky Deutschland, which is even ahead of its namesake in the UK.

Sky Deutschland is one to watch in this space for two reasons: first, the pay TV company, which hit the three million subscriber milestone at Christmas, is pushing pay TV in one of the most pay TV-resistant countries in Europe and yet its results in the last year have been very good indeed. Second, the company, formerly known as Premiere, which 49.9% owner News Corp rebranded as Sky Deutschland in 2009, has been on one of the most interesting journeys of any European pay TV company.

Germany is a notoriously difficult pay TV market because of the volume of free TV available, the strength of the three big cable companies and Deutsche Telekom, a fragmented regulatory environment based on the Federal länder, and the high reliability and speed of the country’s broadband. Into this mix came News Corp, which has already spent about €1 billion on Sky Deutschland. The latter raised €156 million in February, part of a plan to raise a total of ?300 million this year to help fund its bid for Bundesliga rights from the 2013 season, which will be auctioned in April.
The money and the effort are starting to get results. Sky Deutschland is still loss-making (losses for 2011 were ?277.6 million) but operating breakeven is forecast for later this year and profitability in 2013; subscriptions at the end of December were up were 14% from the prior year; ARPU increased in 2011 to €30.46 a month, a rise of 6.2%; and churn has reduced from 16.2% in 2010 to 11% last year.

Sky Deutschland has pushed a number of things to spark the interest of consumers, including being the first pay TV operator to launch HD channels – it now offers 42 and plans are to ramp that up to 60 HD channels by the year’s end and has recently renegotiated its deal with Warner Bros to access more HD films. Sky has also spent a reported ?50 million on the launch in December of Sky Sport News HD, building a state-of-the art studio in its Munich HQ and poaching CNN Germany’s top presenter to front the new service. The sports news channel has proved extremely popular and is an indication of Sky’s commitment to sport and particularly to football, a factor that it is betting will help it prevail in the next Bundesliga football auction.

Crucially Sky Deutschland has also taken advantage of Germany’s impressive broadband connectivity and prioritised its Sky Go multiscreen option. The result is that there are more Sky Go active users – at 600,000 –  than  Sky Plus subscriptions, which at the end of the fourth quarter of 2011 stood at 411,000. In fact in Germany there are fewer than three million DVRs in total because people are more accustomed to taking things off the web than time-shifting on a DVR. Sky Deutschland reported to investors recently that it saw four million unique sessions on Sky Go in the last quarter of 2011. All-in-all, the operator’s success is helping turn the anti-pay-TV tide in Germany and, as the country is one of the biggest in Europe with 40 million TV homes, it’s an extraordinary turnaround.

So, is it all plain sailing for News Corp and Sky Deutschland? Well, not entirely. That football auction looms large. There will be more competitors than ever, including the usual suspects (Deutsche Telekom, RTL and ProSieben) and the new kids on this block like Al Jazeera (fresh from winning the rights to air Champions League football in France). The rights will likely cost Sky Deutschland more than the reported ?250 million a year that it is paying currently. And Germany’s cablers are not sitting on their hands: they already command a large number of subscribers, albeit with lower ARPUs than Sky Deutschland.

Sky Deutschland is a big bet for News Corp. But risk-taking is in the DNA of Sky in the UK, which is where Sky Deutschland CEO Brian Sullivan was employed previously. The multiscreen push, combined with HD and  Sky Sports channel is proving a compelling cocktail even for pay TV-resistant Germans. Sky Deutschland also has growing street cred, with some 40% of its new customers coming from direct recommendations. Not bad for a pay TV company that when it was called Premiere was anything but. l

Kate Bulkley is a broadcaster and writer specialising in media and telecommunications. [email protected].