Analyst view: BSkyB launches low-cost set-top box in a bid to gain a greater share of the UK OTT video market
By Cesar Bachelet, Senior Analyst, Analysys Mason
26 July 2013 – This morning, BSkyB, the UK’s leading pay-TV operator, launched a low-cost set-top box which turns any unconnected TV into a ‘smart’ TV. Priced at GBP9.99 (EUR11.59), the set-top box gives access to NOW TV, BSkyB’s OTT video service featuring premium movie and sports content, as well as to popular catch-up TV services, such as the BBC iPlayer, and popular apps such as Spotify.
Our analysis
Although the take-up of Internet-connected video-capable devices has been increasing, a large number of TV sets remain unconnected to the Internet. Results from our recently published Connected Consumer Survey 2013: TV and video report indicate that nearly one fifth of UK respondents with a TV set owned a smart TV, of which only 40% were connected. In addition, just under one in ten owned a connected DVD / Blu-ray player, while less than one in twenty owned a media streaming device. In addition, just over half of respondents had a games console, the majority of which offer a limited range of Internet-delivered video content.
So far, the relatively high cost of Internet-connected video-capable devices, which typically ranges from GBP99 (EUR114.82) for an Apple TV set-top box to an average of more than GBP300 (EUR347.94) for a 32 inch smart TV, has stifled their adoption. In addition, the limited availability of fresh premium content has held back the adoption of paid-for online video services. Less than one sixth of our UK respondents used paid-for OTT video services on any device.
Priced at just GBP9.99 (EUR11.59) and supplied by Roku, in which BSkyB has a minority stake, Sky’s OTT set-top box currently represents the cheapest way to bring Internet-delivered video content to any TV set. It is even cheaper than Google’s Chromecast dongle, which was released the previous day in the USA at a cost of USD35 (GBP22.83, or EUR26.48). This removes a significant barrier to entry to the adoption of peripheral devices which bring the core functionality of smart TVs to the large installed base of so far unconnected TV sets.
We regard the set-top box as a loss-leader to drive the take-up of BSkyB’s NOW TV OTT video service, which was first launched in July 2012, as a NOW TV account is required to use the device. The NOW TV service currently features Sky’s premium sports and movie content, decoupling it from an underlying pay-TV subscription costing at least GBP21.50 (EUR24.94) per month. Whereas a standard subscription including Sky Sports costs at least GBP43.50 (EUR50.45) per month, consumers can now access all Sky Sports channels at a cost of GBP9.99 (EUR11.59) per day through NOW TV, which is designed to appeal to ‘occasional’ sports fans with an interest in specific live events / matches. Indeed, Sky reported that 50,000 users had purchased day passes within three months of their launch in March 2013. Consumers can also access Sky Movies content at a cost of GBP15.00 (EUR17.40) per month, instead of committing to a subscription costing at least GBP37.50 (EUR43.49) per month.
Although we feel that BSkyB runs the risk of cannibalising a small proportion of its existing pay-TV subscriber base, we believe that it has more to gain than to lose from this move. By combining a very affordable device with high-quality content, BSkyB broadens its appeal to FTA (free-to-air) viewers who want occasional access to premium sports or movies, challenging existing OTT video players such as Netflix and LOVEFiLM, as well as low-end pay-TV propositions such as Talk Talk TV.
Should the market evolve in a different direction than we anticipate, with higher levels of cord-cutting among its pay-TV subscribers, BSkyB still minimises the risk of revenue cannibalisation by having a stake in both the traditional pay-TV and OTT video markets.
About Analysys Mason (www.analysysmason.com)
Analysys Mason is a global consultancy and research company specialising in telecoms, media and technology (TMT). Our clients in the TMT sectors operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that, our consultants have developed rigorous methodologies that deliver real-world results for clients around the world. In terms of our research, the world’s leading network operators, vendors, regulators and investors subscribe to our research and rely on our insight to inform their decision making.
