At content tradeshow MipTV on April 4, Sky group chief executive Jeremy Darroch will be honored with Variety’s Achievement in Intl. Television Award, which is given to individuals who exhibit leadership, creativity and innovation in the global television business.
Pay TV operator Sky has blazed a trail in Europe’s entertainment sector. Following the 2014 merger of Sky in the U.K. with Sky Italia and Sky Deutschland, it now serves 21.5 million customers across Italy, Germany, Austria, the U.K. and Ireland. It is a highly valued partner to producers and distributors in both Hollywood and the international business; and it spends £4.9 billion ($7.1 billion) on content a year, split between acquisitions and its own productions.
The key to understanding Sky, Darroch says, is that “at our heart we are an optimistic bunch of people with a belief in constantly renewing and improving what we do. When you combine this positive outlook, and a desire to constantly reinvent yourself, good things start to flow.”
From the start, Sky has been driven by the principle of self-reliance, he says. “We take charge of our own destiny. We are not looking for breaks. We are not looking for handouts. We really believe in the force of the market and that if we keep investing in the important things like content and service then we will win with customers, and that will define the success of the business.”
Darroch tells staff to be “bold” in their decision-making and back their judgment. “We are here to make things happen, and my experience at Sky is that the bigger and bolder we are, the better we are. That’s when you see the organization coalesce around big creative ideas.”
As an example he cites the launch five years ago of Sky Atlantic. The high-end drama series and documentary feature channel is the exclusive home of HBO and Showtime shows, as well as Sky’s original drama productions, including co-productions “The Last Panthers,” “Fortitude” and “The Young Pope.”
Darroch, who describes Sky as “a naturally restless business,” says the merger of the three companies in Europe was driven forward because “we saw the opportunity for growth, and we are a growth business.
“It was an opportunity to expand to a much broader footprint across Europe — with something like 65 million households who weren’t taking pay TV, and unlock some of that demand.”
The merger has allowed Sky to migrate expertise from its U.K. operation to Germany and Italy. One example of this is its Sky Q viewing platform, which allows customers to record shows at home on the set-top box and then view them on other devices away from home, as well as to view content on multiple screens around the house. Sky Q debuted in the U.K. and Ireland in February and will roll out in Germany, Austria and Italy soon.
“We can compress the product and innovation development cycles there almost down to zero, but we can also learn from the creativity that exists in Italy and Germany,” Darroch says.
An example of Italy’s creative contribution to Sky is Paolo Sorrentino’s “The Young Pope,” starring Jude Law and Diane Keaton, while Germany is the source of another big-budget Sky series, Tom Tykwer’s “Babylon Berlin.”
An innovation that has already been shared across the different countries is the subscription video-on-demand service Now TV, which allows consumers to view Sky shows, movies and live sports coverage for a monthly sum, but without a contract. Darroch says this offers them an alternative, without cannibalizing the pay TV business.
“We found that it has proved to be very complementary, so our traditional direct-to-home business continues to grow. Now TV is a way that we are opening up new customer segments and targeting different types of people,” he says.
Sky has continued to add subscribers despite competition from streaming services Netflix and Amazon Prime, BT Vision, the pay TV service launched by local telco BT, and Virgin Media, the cable network owned by Liberty Global.
Darroch states the cord-cutting seen in the U.S. hasn’t been experienced by Sky because of the differences in the packages offered. “We really stopped selling the big bundle in 2006-2007, so much of our growth has come from selling smaller bundles, and essentially what is happening in the States is the big bundle is being dismantled and the smaller bundle is replacing it,” he says.
“Also, if you look at the relative quality of some those offerings I think it is quite a lot better here. Finally, pricing is really quite different in the States versus here. Typically U.S. pricing is about 50%-60% on a purchase power basis higher than Europe, so therefore the economic imperative for customers to cut is far less here than over there.”
The company has stopped talking about “channels” and has replaced that with the word “brands.”
“The first thing you do when you start to think of brands rather than channels is you start to orientate yourself around the customer rather than around a particular technology,” Darroch says. “We are increasingly agnostic about how our customers consume our content. We just want to make it easy for them.”
This approach helps when Sky is looking to expand its geographical footprint. As the opportunity presents itself, Sky will move into new territories.
“There are different ways to do that, I think — acquisition obviously is a way to get to greater scale more quickly, but also we are seeing distribution barriers start to come down. As Europe starts to move to more of a single-digital market, there are things like our OTT products that we can take to other places,” Darroch says.
“I think our job, having brought the (three Sky companies) together, was to reset our growth trajectory, integrate the businesses, develop the synergy plans, build the big pillars upon which this business is going to be built — and they are largely coming together — and then from that, we can start to think about other places we could go to.”
This expansionist ethos will be boosted by the return of James Murdoch as chairman. Murdoch is CEO of 21st Century Fox, which owns a 39% stake in Sky. He served as Sky’s chief executive from 2003 to 2007, and as chairman from 2007 to 2012. “James is a great chairman because he knows Sky well, he and I have worked together a long time and know each other very well,” Darroch says. “He’s extremely popular at Sky, and he’s got a detailed understanding of the media sector as a whole, so he adds a lot of value.”
Steve Clarke contributed to this report.