The Sky/Vodafone Merger

By | June 13, 2016

In case you haven’t been keeping up with the news, here are the specifics:

Earlier this month, Sky Network TV announced its plan to buy Vodafone New Zealand for $3.44 billion in cash and shares in a reverse takeover which would see Vodafone’s British parent group own 51 per cent of the combined group’s shares.

In retrospect, the merger is an obvious move for Sky: delivery of televised content has migrated over the decades, from terrestrial transmitters to satellites to online — and latterly to mobile. Sky’s integration with Vodafone allows it to secure premium access to both online and mobile delivery mechanisms at what’s likely to be perceived (in due course, if not today) as a bargain-basement price.

Sky’s acquisition of Vodafone UK as a majority shareholder is a smart move as well, for reasons we’ll explore shortly.

Television Moves Online
According to Millward Brown/Colmar Brunton’s AdReaction Video Creative in a Digital World study released in late 2015, Kiwis view video content for just over three hours per day. 62 minutes are spent with Live TV, 38 minutes with on demand TV, 45 minutes on the computer, 16 minutes on the tablet and 35 minutes via the smartphone. That’s 100 minutes for Live/Replay TV versus 96 minutes for other, online video content. The tipping point approacheth.

According to data presented in support of the merger, online video (OTT video) delivered via mobile is just going crazy.

mobile-video

The Online Video Segments
If we look at Nielsen data (cited in Marketing Magazine’s 2016 Media Issue), we see that online television content falls into four discreet segments:

  • 33% “Catch-Up”/On Demand services (eg TVNZ On Demand, 3NOW, Sky Go)
  • 19% Snippets or Entire Shows screened on YouTube, Video, Vine, etc.
  • 17% Pirated content
  • 14% Subscription-based streamed TV (eg Netflix, Lightbox, Neon)

That’s the new convergent context within which Sky is now competing (and don’t even get us started on the challenges posed by the dramatically-growing live-streaming video services offered by Periscope, Meerkat and Facebook Live — see our Social Media Refresher course for details).

Let’s drill down and consider each of the segments (and how they might benefit from the proposed merger):

1. “Catch-Up”/On Demand services
Sky Go is a well-established (but occasionally glitchy) On Demand service. Most of the problems with Sky Go — or, at least, the most publicised problems — tend to occur around high-profile sporting events, where demand is at its peak and the systems cannot cope. Applying Vodafone’s technical expertise to Sky Go would be an excellent step in the right direction.

2. Snippets or Entire Shows screened on YouTube, Video, Vine, etc.
Sky’s satellite transponder inventory is extensive but naturally limited in total capacity, forcing the company to be selective in terms of its channel choices. Online/mobile allows for a much broader range of content offerings, if the company chose to provide it.

3. Pirated content
Most video content is pirated for one of two reasons: viewers don’t want/can’t afford to pay; or they don’t want to wait. Online/mobile capacity allows for any number of programmes to be screened as soon as they are broadcast in their country of origin, removing one of the underlying motives for piracy.

4. Subscription-based streamed TV
Sky has been buying digital rights to its content for many years, which is one of the reasons why so many have lamented the decided lack of content on Netflix’s New Zealand feed. The general expectation is that, in due course, Netflix will end up with most of the rights: studios who currently have output deals with local broadcasters would rather deal with a single global buyer. That’s understandable. But what if someone like Vodafone UK decided to built a competing global network, acquiring content to pump through its local companies?

Sky’s Biggest Challenge

The most significant issue for Sky, with or without the merger, is that in common with Pay-TV companies everywhere, the company faces substantially increased competition for eyeballs from free (YouTube, Facebook Live) and lower-priced (Netflix, Lightbox) video providers. It’s a challenge that Sky has been facing all its corporate life — we’ve always been able to choose to watch Free To Air TV instead of paying for Sky.

This time, however, Sky has to compete against not just one programme at a time (“Do I watch Shortland Street on TV2 or a movie on Sky?”) but against a hundred or a thousand programmes at a time, available through untethered devices for viewers to watch whenever and wherever they want.

And that, in the end, is the biggest opportunity for Sky with the Vodafone merger: the ability to provide whatever, whenever, wherever content to its subscribers, no longer limited to the tyranny of television schedules delivered sequentially via satellite to a device standing forlorn in an empty lounge.

Worth it.