Last time Sky turned in its quarterly numbers, attention focused on the threat to the media empire from the likes of Netflix. Flash forward to this week and things have moved on markedly, not least because of the takeover bid for the firm by Rupert Murdoch’s 21st Century Fox.
Fox already owns a 39% controlling stake in Sky, but is bidding to buy the remainder of the company.That deal has been approved by the European Commission’s competition authorities, although has yet to receive sign-off from the UK’s regulator Ofcom.
While the takeover process remains a work in progress, for CEO Jeremy Darroch there’s a day job to be done, which includes tapping into some unexpected opportunities arising from YouTube’s recent advertiser boycott after brands found themselves popping up alongside extremist content online. He says:
We see that opportunity, we’ve always seen that. [Sky’s AdTech] is a very brand safe product. There’s a world of difference between the quality of the context offered by some of the online players and the ability to pop your ad in the middle of a Premier League match on a Saturday afternoon or Game of Thrones or Big Little Eyes.
The ‘YouTube’ effect hasn’t actually made a material impact as yet, but it’s early days, he adds:
So, there’s a huge opportunity in terms of getting the quality and the context of our advertising to stick…Most of the stories we’ve seen reported extensively in the U.K. around the sort of content some online advertising has been served up in is pretty new and it’s probably not yet fed through to media buying parents.
Certainly a boost would help. Sky’s ad revenue increased 4% to £613 million in the nine months to 31 March 2017, down from 7% for the same period last year. Sky is looking to expand the footprint of its own programmatic targetted advertising tech AdSmart in order to try to steal away revenues from online rivals such as Google and Facebook. Darroch says:
We’ve seen clients, who have been spending big in digital, look to AdSmart for the trust and transparency and the independent measurement that we offer. There’s a lot of money that goes into the digital and it will, at the very least, take a long time for much of that to flow into AdSmart. But we would see it as an adjacent part and people like the digital tech giants as part of our competitor set when we’re going to market with AdSmart.
AdSmart allows TV advertisers to target consumers based on various localised factors, including postcodes, level of affluence and age. Earlier this week it emerged that Virgin Media is set to join the AdSmart network, potentially adding a further 3.7 million homes to the reach of the network. Sky also plans a pan-European rollout of the offering to Germany, Italy, Ireland and Austria by the end of this year.
It is, says Darroch, an evolution, but one that is delivering some decent metrics:
The two categories that we saw best traction with early on were direct mail, which is always a product that was set up in a very segmented way. People purchasing direct mail found it easy to apply the same concepts and be able to segment and direct their advertising in TV for the very first time.
The UK advertising market, this is true of most of the European advertising markets, never really had a local TV ability. So one of the most used segments or fields within AdSmart is the ability to target based on a particular catchment area or a drive time to particular store. And some of that money came out of local press.
As for the oncoming pressures from the likes of Netflix and Amazon, Darroch remains confident that Sky can delier a content portfoliuo to compete with the likes of The Crown and House of Cards:
Central to this is an outstanding slate of our own productions as well as a strong line-up of hit U.S. shows and the seventh series of Game of Thrones. In movies, we’ll be providing access to the best premieres with Hollywood blockbusters and popular local titles. As always, we have a strong summer of sports with the climax of each of our domestic football leagues, the international rugby, the British and Irish Lions will take on the AllBlacks. And in Formula One, it looks like it could be the most wide open championship for many years. Finally, we’re delighted to launch our third sport in Ultra HD when we bring England South versus South Africa in a test series to Sky Q customers in July.
Most strikingly though, Sky has just announced a partnership with US cable giant HBO to create new drama series, part of its Sky Orginals strategy:
This $250 million multi-year co-production deal will bring together two of the world’s leading direct consumer brands to commission and produce high-quality drama for global audience. We expect to see our first commission to air in 2018, with initial projects already in development.
On the tech innovation front, Darroch points to a new Virtual Reality initiative, teaming up with TV legend David Attenborough and the Natural History Museum in London to create a new interactive experience.
At a more pragmaric consumer-facing level, innovation efforts remain focused on improving the Sky subscriber experience, he says:
We’ve recently launched a number of developments to Sky Q in the UK, including a brilliant voice search and new personalization features and we look forward to rolling out Sky Q to our other territories in due course. And we’re making a major step change in our service delivery, once again, transforming our customer experience.
We launched our new Sky Digital service in the UK and our new app, which has been downloaded by 1.2 million customers in the last two months since launch. Over the course of this year, we’ll continue to enhance our digital service including our new messaging feature coming soon. All of this will have a dual benefit of improving the customer experience, whilst also further transforming our cost base.
The borders between tech, digital and content continue to blur. Sky’s ad revenues may have slowed, but its ambitions are on the rise, as they need to be in the increasingly complicated and competitive media landscape. Assuming the Fox deal gets the go-ahead, the next couple of years is going to be transformative for the company – one way or another. Getting its digital and ad tech strategies on the right path is going to be essential.
Image credit - Sky