Pay-TV Prices To Stay High

Independent producers and distributors who had feared that the merger of British Satellite Broadcasting and Sky Television would lead to a collapse of pay-tv prices in the U.K. can rest easy. It isn’t going to happen.

There is still competitive pressure from terrestrial television. Meanwhile, major studios, who in the short-term provide an alternative route into U.K. satellite via their fixed-price output deals and who in the long-term can combat low prices by threatening to set up a movie channel of their own, have also averted a price collapse.

But, at the same time, it is true that the days of inflated prices are over. From here on, the prices offered by Sky, which, per London-based sales agents who have done business with both, always drove a harder bargain than BSB, will set the benchmark. For those who have only ever done business with BSB it could come as a shock. For the rest, it’s business as usual.

Where BSkyB can use its monopoly is in payment terms and license periods. Per head of BSkyB’s movie operations Stewart Till, the company will henceforth push for a greater proportion of its payments to fall closer to the first screening dates rather than be tied to delivery and will insist on 15-month license periods rather than the 12-month period that both BSB and Sky commonly accepted in the past.

The production community will have its first opportunity to test these observations at the American Film Market next month, when the merged company will resume the acquisition activity that was formerly carried out by Sky and BSB separately.

Although, according to Till, BSkyB has sufficient inventory to cover most of its requirements in 1991 and has output deals with the studios and with leading independents such as Morgan Creek and Carolco that, with renewal options, will in many cases run for six years or more, it still has need of ‘A’ titles to improve the quality of its service and fillers to flesh out the gaps in its schedules.

Per exec, the company will be looking particularly to pre-buy pictures for screening in four years’ time or more.

The first thing that sales agents and producers’ reps will notice at the AFM is that although BSkyB is one company there are still two movie channels, called, as before, The Movie Channel and Sky Movies. Each has an appetite of about 400 films a year.

BSkyB undertook a detailed cost/benefit analysis of a single channel that would screen the cream of the films pre-bought for Sky and BSB. Such a service could retail to subscribers for around £14 ($27) a month. But the company found that income would most likely be maximized, offering the two existing channels for around £ 9.99 ($19) each. “Customers will be offered both channels for a combined sub of about £17 ($32).

BSkyB says it will encourage double subscriptions by giving each channel a distinctive flavor. The customer will thus feel there is something to be gained from having both. Exactly how this will be achieved is not clear. It is known, however, that the company has abandoned the idea of offering an expensive “Gold” channel and a cheaper “Silver” one.

The formula adopted will likely involve some renegotiation of terms with the Hollywood studios. In particular, if a film that was earmarked for Sky Movies is now to be scheduled on The Movie Channel, the producer would have to look hard at the escalator clauses that link final payments to ratings. The Movie Channel has a much smaller subscriber base than does Sky.

On the cost side, there are few benefits in merging the channels since the major expenditure – the acquisition of titles – has already been committed. The incremental cost of running two rather than one lies in additional staffing and the hire of a second transponder on the Astra Ib satellite. The Movie Channel, which is currently only available via “squarials” that pick up signals from the Marco Polo satellite, is marking time until Astra lb goes into orbit in April.

The dual service will probably continue for as long as BSkyB is bound by the BSB and Sky output deals – until at least 1996.

It is these output deals, the prices of which have already been agreed, that guarantee that the sums offered by BSkyB will remain relatively high. Put simply, a producer of an ‘A’ title who is unhappy with the price offered by BSkyB can take his picture to any one of the studios or independents that have output deals with the company and negotiate for his picture to be included in their package. To prevent this, BSkyB has to offer a price that at least matches the return that the producer could expect to receive after the studio has taken its cut.

Where ‘B’ titles are concerned, BSB and Sky were always in competition with terrestrial broadcasters, who would often pay higher prices for the right to preempt the pay-TV window. That situation still holds.

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