THE PAST

1
 COMPAN Y OVERVIEW

Since its official launch in 1998, Sky digital has flourished, growing from 225,000 customers to
7 million in 2003 then 9.95 million in 2010 with 16,500 employees, Sky Digital stands as the
UK’s top pay television provider. Sky Digital is the brand name for British Sky Broadcasting’s
digital television service transmitted from Astra Satellites. BSkyB’s analogue broadcast ended
in 2001, so the service is now commonly marketed as Sky Digital, making it the world’s first
digital-only service provider. Sky digital also enables viewers to perform a wide variety of
interactive tasks ranging from sending email, shopping, betting and banking (Sky, Key facts
and Figures, 2010).
 BRITISH SATELLITE BROADCAST (BSB) VS SKYTV IN 1980S

In 1983, Rupert Murdoch's News International set up Sky Channel, a European-based satellite-to-
cable broadcaster providing a mix of English-language sports and entertainment programming to
much of Europe's cable television systems. Sky Channel proved less than successful, however,
generating under $20 million per year in advertising revenues, and by the mid-1980s Murdoch was
already looking to evolve the Sky concept toward the newly emerging direct satellite broadcasting
technology and to focus the television subsidiary on the British market. Satellite television represented
a significant step in British television history. By law, broadcast television was restricted to just four
channels the two license-fee backed BBC channels and two advertiser-supported channels, ITV and
Channel 4. Cable television, meanwhile, was nonexistent in the United Kingdom (Sky, Key facts and
Figures, 2010).

BSB, as it was known then, was established in 1988 and announced plans to begin broadcasting in
mid-1989. Rather than making use of existing satellites, the company determined to build and launch
its own satellites and to broadcast using a new technology, called D-MAC, to a Philips-designed
receiver dish known as a "squarial." Technical problems with the system delayed BSB's launch for
more than nine months, until April 1990; even after starting up, BSB was confronted with a shortage of
squarials. By then, however, BSB no longer had an exclusive on the British satellite market. Murdoch
had not abandoned his British satellite designs, he pushed ahead with his SkyTV concept. Start-up
costs reached £122 million; losses for its first year of operations were £95 million. By the time BSB
finally launched its service in April 1990, SkyTV had already placed 750,000 satellite dishes. Six
months later, SkyTV had reached more than 1.5 million homes, against BSB claims of 750,000 figures
that included cable-based subscribers (History of British Sky Broadcasting Group PLC, 2008).

Meanwhile, engaged in a bitter rivalry for the home satellite market, both companies were
haemorrhaging badly. Murdoch's investment in SkyTV already totaled some £400 million, while the
satellite company was losing more than £2.2 million per week. Nevertheless, with a break-even point
of three million households expected to be reached in 1992, SkyTV still appeared in better shape than
BSB. That service had already spent approximately £800 million by November 1990, with a break-
even point projected for 1993 at the earliest which seemed more unlikely as the weeks went by, given
that each week was costing the BSB partners more than £8 million. Nonetheless, it was still the early
days of the British satellite market, with its television viewing potential of more than 20 million
households, and despite SkyTV's initial subscriber lead, BSB held the financial edge, with its powerful
parent companies prepared to invest as much as £1.3 billion into the company compared to Murdoch's
growing struggles to meet the interest payments on News International's debts of more than £4.5
billion. In the end, Murdoch's financial problems determined the next phase of the British satellite
television industry (Sky, Key facts and Figures, 2010).

The two companies announced their intention to merge in November 1990. The newly merged
company, now known as British Sky Broadcasting, or BSkyB, represented a 50-50 ownership between
Murdoch and the four BSB investors. The two sides agreed to put up £100 million in working capital,
with the BSB side contributing £70 million and Murdoch adding the remainder. The agreement also
included a scale of dividend payments: after reaching profitability, News International would receive 80
percent of the first £400 million in dividends, which would then be split 50-50 for 12 years until 2008, at

3
which point BSB would receive 80 percent of the next £400 million. Within the company itself, the
former SkyTV staff quickly dominated the workforce, virtually replacing all of the former BSB
managerial and other staff (History of British Sky Broadcasting Group PLC, 2008).

BSKYB IN 1990

The newly merged company appointed Sam Chisholm as the broadcaster's CEO. Recruited by
Murdoch in September 1990, Chisholm was placed in charge of repairing the damages at company,
which posted a loss of £14 million in its first week of operations. These losses continued for six
months, forcing Murdoch and partners to arrange a refinancing package, worth some £700 million, to
keep the company afloat. Chisholm pushed through an extensive series of cost-cutting procedures,
which included firing most of the former BSB staff total staff dropped from 4,500 to just 1,000
managing to reduce the company's losses to just £1.6 million per week by the summer of 1991. By
March 1992, BSkyB was showing its first operating profits, of £100,000 per week, fully a year ahead of
schedule (Sky, Key facts and Figures, 2010).

Subscription revenues reached £3.8 million weekly, while advertising revenues added another £1
million each week. The company continued to post operating profits through the year, and by the end
of the company's 1993 fiscal year BSkyB was posting an operating profit of nearly £186 million. As
BSkyB expanded its multichannel offerings, often accompanied by subscription fee increases, the
company's virtual monopoly on the British satellite television market continued to bring in new
subscribers, passing the critical three million mark in 1993 and topping 3.5 million households by mid-
1994 (History of British Sky Broadcasting Group PLC, 2008).

Source: UK satellite TV
evolution vector

DIGITAL SKY LATE 1990’S AND BEYOND

While BSkyB's fortunes continued to rise with revenues topping £1 billion and pre-tax profits of £257
million by year-end 1996 the company also hastened to join the next, and perhaps greatest, revolution
in television history - digital broadcasting. With the capacity of offering as many as 500 channels, as
well as interactive services such as video on demand and telephony applications, the dawn of digital
broadcast technology was quickly making BSkyB's analog equipment appear obsolete (Sky, Key facts
and Figures, 2010).

The launch of BSkyB's digital service in 1998 was enormously successful. Sky digital, the United
Kingdom's first digital television service, easily carved out a leading position in the industry with its
offering of 140 channels. In just 30 days, the company sold over 100,000 digiboxes and secured its
position as the fastest-growing digital platform in the world. This growth continued at a rapid clip and
was bolstered by the company's decision to give away free digiboxes, or set-top boxes, and
minidishes. Within ten months of the promotion, Sky digital had gained 1.2 million new subscribers. In
1998, the company also launched several interactive services, including Sky Sports Extra which
allowed viewers access to instant replays, match statistics, highlights and an interactive shopping
channel (Sky, Key facts and Figures, 2010).

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The company introduced the first interactive advertising campaigns in 2000 and rolled out Sky News
Active, the world's first interactive television news service. It also launched Sky+, a fully-integrated
personal video recorder. By 2001, the firm's digital subscriber base had surpassed five million. That
year, BSkyB shuttered its analog signal, becoming the world's first nationwide provider to rely solely on
digital service.

By 2002, Sky digital programming was broadcasted into a quarter of all British households.
The company developed Freeview that year, offering customers three channels through
digital terrestrial television (DTT). The firm defined DTT as television channels using digital
signals delivered to homes through a conventional aerial and then converted through a
digibox or set-top box. In 2003, BSkyB expanded into music television with the launch of three
new channels. The company signed its seven millionth subscriber in October of that year
(Sky, Key facts and Figures, 2010).

Source: Ofcom ‘Digital Television Update March 2009’, Comreg June 2009, Company
information as at 30 June 2009
In 2005, Sky news and Sky Sports were streamed to mobile phone as part of the new Sky
Mobile TV service. By 2006, Sky+ HD became UK’s first nationwide high definition television
service and is also the first major media company in the world to become carbon neutral. The
launch of Sky broadband brought more of a choice to UK broadband users (Sky Timeline,
2009).
Source: GfK and Sky estimates; Data for HD TV sets over 26 inch screen size. Sky HD Subscribers as
at 30 June.

7
THE PRESENT
 OVERVIEW AND ENVIRONMENTAL AUDIT

Sky Broadcasting (BSkyB) operates the leading pay television broadcast service in the UK
and also provides broadband internet and telephony services. The company has a total of 8.8
million customers and runs a comprehensive content portfolio spanning entertainment, news,
movies and sports. It is also the UK’s fastest growing broadband provider and is currently
growing its market share in home telephony (BSkyB 2010).

Sky has shown that it is prepared to take risks and has been able to keep moving forward to
meet customer needs, such as the transition from analogue to digital broadcasting and the
provision of digital video recorders such as Sky+. The company has entered the
communications sector and challenged the established providers with the quality and value
that has made Sky the UK’s fastest-growing broadband and home phone provider. It has
made a commitment to high definition (HD) television which has enabled the company to
dominate market share in this sector. The marketing strategy of BSkyB is focused around two
key aspects. Firstly, it continues to grow its customer base by attracting new customers and
secondly it offers take-up of additional products for existing customers.

BSkyB’s marketing communication mix recognises the company’s responsibility towards their
customers, suppliers and communities in which they operate. The company is committed to
its corporate responsibility strategy by providing an energy efficient service and have
implemented measures since 2001 BSkyB to help customers to reduce their energy use by
extending their ‘auto-standby’ feature to all active Sky boxes, a move which the organization
believe will save around £20 million in energy costs each year, as well as 90,000 tonnes of
CO2 (BSkyB 2010).

The company’s marketing communication mix is largely centered on its objectives of

achieving organic growth by moving existing customers away from standard television

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packages to Sky plus, HD products including phone and broadband services. This has
enabled the organisation to diversify its product portfolio and expand its business

Marketing costs since early 2010 have increased by £58 million to £302 million (Start 2010:
£244 million) due to increased investment in marketing campaigns in home communications
and Sky Sports for the current football season. This has resulted in a large increase in the
proportion of new customers subscribing to HD directly on joining Sky as almost half of new
customers in the fourth quarter of 2010 chose to pay an additional £10 a month for the HD
channel service (BSkyB 2010).

Sky has increased its new subscriber costs by £31 to £339 this year. This increase is possible
due to a strong demand for new HD consumers, with which the organisation is increasing its
market share. The company is of a totally different size in comparison to three years ago.
Over the past three years, the total number of customers has increased by 15%.
Demonstrating good performance and growth despite operating in a touch economic
environment compounded with the effects of a global recession. A distinct advantage of Sky’s
interactive service is the company can target entertainment packages and customise its offers
based on consumer usage trends which it can monitor closely through the HD interactive
service (BSkyB 2009).

Customers are defined as the total number of residential and commercial direct-to-home
(DTH) customers at the close of a given period. Churn represents the number of DTH
customers over a given period that terminated their subscription, expressed as a percentage
of total average subscribers (measure of customer satisfaction)

Sky+ penetration is defined as the percentage of customers viewing their TV through a Sky+
or Sky+ HD set-top-box. The percentage of DTH customers taking each of TV, broadband and
telephony has increased due to a strong marketing campaign.

(BskyB 2009)

Total customers are defined as the total number of residential and commercial direct-to-home
(DTH) customers at the close of a given period. The Group also retails certain Sky channels
to a limited number of DSL subscribers which are included.
(BSkyB 2009)

HD penetration is defined as the percentage of customers paying an additional monthly

subscription to view HD content. This take-up of HD is an important measure for customer
satisfaction while also generating incremental revenue and profit for Sky. The percentage of
total customers taking up any television products and both a Broadband and a telephone
product have also increased year on year.

(BSkyB 2009)
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 BUSINESS AND STRATEGIC PHILOSOPHY

Sky’s key business strategy has been focused around the emergence of HD technology and
has taken advantage by positioning the business to centre its marketing strategy on this
product. In January 2009, the company made a conscious decision to accelerate the growth
of HD technology following the acquisition of Amstrad. Consumer response has been
exponential with the total number of Sky+HD customers more than doubling to 1.3 million
since the start of the financial year (BSkyB 2010).

Sky have identified drama and the arts, as two genres where the company can reach out to
new audiences, meeting needs that are increasingly less well served by free-to-air
broadcasters. The organisation has doubled its arts output by expanding the Sky Arts
portfolio to include four dedicated channels with an average reach of around 1.5 million
viewers each month. In this quarter Sky has completed the acquisition of the Living TV Group
and also announced the introduction of a new channel Sky Atlantic HD to extend its
entertainment portfolio to complement its emphasis on drama and comedy

THE ROLE OF GOVERNMENT

The Government has asked media regulator to assess the affect on media plurality of the
proposal from Rupert Murdoch's News Corporation to take over BSkyB. The newspaper
publisher already owns 39.1% of the satellite broadcasting company and has made an £8.2
billion offer for the remaining shares of the company, which are listed on the public markets.

BSkyB's independent directors have rejected the 675p per share offer and say they will only
consider an offer of 800p per share or more. They have agreed to allow the regulatory
process to continue, though, and will negotiate later on price. Secretary of State for Business
Vince Cable has issued an intervention in the deal under the Enterprise Act. He has asked
Ofcom to assess whether the deal will create too great a concentration of media ownership in
the UK.

CORPORATE AND MARKETING ANALYSIS

Sky product promotion communication mix is marketed through all possible types of media.
The organisation regularly uses the press (including both national and regional newspapers
and magazines) due to its links with the News of the World, The Sun (Britain’s best selling
newspaper) and the Times, through Rupert Murdoch ownership. It also takes advantage of
media inserts, door drops, direct mailings, outdoor activity (such as billboards and bus backs),
on-air advertising on both national and regional radio and television channels (on both
promotional and commercial airtime).

The company also regularly advertises promotions using internet online advertising on both
third party websites and on sky.com. In addition to its own customer magazine and point of
sale advertising in retail outlets which sell its products and services including Sky retail stores.
In 2009 Sky obtained £308 million of its revenue from advertising sales (2008: £328 million)
advertising for all of the 26 Sky Channels. The organisation also act as the advertising sales
representative for certain third party channels, by selling advertising time across all of the Sky
and third party channels.

Wholesale subscription revenue increased by £25 million to £206 million (2008: £181 million)
reflecting the return of its basic channels to Virgin Media’s platform in November 2008.
Installation, hardware and service revenue decreased by £41 million to £235 million (2008:
£276 million). Higher volumes of premium box sales (Sky+ and Sky+HD) partially
compensated for lower hardware prices.
Marketing costs increased by 22% to £907 million reflecting the strong demand for Sky+HD
throughout the period and our decision to accelerate the take-up of the product through a
lower retail box price. Subscriber acquisition cost was £308 reflecting the improvement in
premium box mix, with around 90% of new customers in the second half of the financial year
joining Sky with either a Sky+ or Sky+HD box, compared to 56% in the comparable period
(BSkyB 2010).

CORPORATE AND OPERATIONAL REVIEW

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In the 12 months to 30 June 2009, Sky witnessed accelerated customer growth as consumers
responded to the quality and value of Sky’s services. Annual net customer additions were
462,000, 16% higher than the prior year, taking the total base to 9.442 million. Sky believe the
migration to high definition quality TV is a significant opportunity for its business.
Approximately nine million households already have HD-ready TV screens and this is
expected to reach almost 14 million by the end of the decade. There is growing penetration of
HD-enabled devices such as Blu-ray players and game consoles, and content producers are
embracing HD at a faster rate than ever before. As a result, the organisation is seeing a
dramatic shift in awareness of HD and more and more people are starting to regard HD
quality as standard.

Sky has more than doubled the base of HD customers during the year to 1.3 million, adding
534,000 in the last six months alone. Behind this performance is the innovative Sky+
technology, the enhanced picture and sound quality of HD and an outstanding range of
content from great brands. The company invested around £130 million in the second half of
the financial year and these customers are already generating incremental run-rate revenue
well in excess of £100 million. Throughout the year, Sky has maintained its position as the
fastest-growing broadband and telephony provider, taking around 50% share of UK
broadband net additions.

SWOT ANALYSIS

Strengths
At the end of the Financial Year 2010, there were 9.9 million BSkyB DTH (Direct to Home)
users which is 418,000 more compared to last year and determines an annual growth rate
(CAGR) of 5%. In addition to this in March 2010, an additional 10.2 million watchers in U.K
received Sky channels through other DTT platforms (BSkyB 2009).

BSKYB provides home communications products. At the end of the financial year 2010,
421,000 broadband users and 517,000 telephone customers were added to increase the
customer base to 2.4 million. Today, one in five customers opts for the package of TV,
telephony and broadband in their home. The number of customers cancelling their service
throughout the year decreased by 0.1% in 2009, showing an improvement in customer
satisfaction (BSkyB 2010).

From a marketing perspective, it is remarkable that ARPU (Average Revenue per User) has
increased from £427 in 2008 to £508 in 2010, an increase of 5.2%. This shows that
customers are more willing to pay a premium if the service is sufficient (BSkyB 2010).

The wide product portfolio is an additional core competency for the group as a whole. They
offer basic channels, premium channels, pay-per-view, interactive services, betting and
gaming amongst other activities, all of which have a degree of complementarity.

Further strengths include:

• Established distribution channels
• Own production capability
• Technological development / Research and Development

Weaknesses

Virgin Media (VM) is the major cable systems provider in UK and is BSkyB’s main competitor.
The group derived £238 million of its whole sale revenue from VM platform in 2010 (Virgin
Media 2010). This may affect the group in two aspects; firstly, the market variations, fiscal
factors , or a change in strategy relating to the distribution of the group’s channels, may
adversely affect BSkyB's wholesale revenue and other revenue which it receives from VM in
connection with supply of the Sky Premium and Basic Channels. Secondly, the loss of VM as
the group's distributor can extremely influence the group’s business. The rise of VM has
compromised the future and security of BSkyB.

According to IMF (2010), the real GDP growth rate for the UK declined from 0.5% in 2008 to
negative 4.9% in 2009. Against the background of the Euro area’s debt crisis, IMF has
recently lowered its projections for the UK growth in 2010. The UK real GDP is forecast to
report sluggish growth of 1.2% in 2010. The worsening conditions do not positively influence
development to premium services such as BSkyB’s.

15
Further weaknesses include
• Poor reputation and relationship in relation to interacting with regulatory authorities
• Higher installation fee than competitors
• Comparatively inferior broadband (to VM)

The value chain analysis (Appendix A), demonstrates a deeper application of these strengths
and weaknesses and demonstrates how they combine into the service and product offering.

Opportunities

BSkyB has introduced new services during last few years. In September 2009 the group
launched Sky Songs, an online music service offering access to over four million tracks for
download and ad-free streaming. In addition, they made available Sky Mobile TV App in
November 2009. Few months ago they launched the Sky TV mobile App for iPad and in
October 2010 they introduced Sky 3D, Europe’s first 3D channel. All of these new features
and services have established new opportunities for the group to expand its market share and
attract more customers in the following years.

There is another potential market growth in HDTV. According to surveys, in 2010, 116 million
European households were equipped with HD-enabled TVs and 170 million in 2013, which is
a considerable growth comparing to 2009 that was only 59 million. Furthermore, currently
around 38 million users are taking advantage of HD pay-TV services, twice the number of
watchers using HD free-to-air (Euro Consult 2010).

Threats

BSkyB is engaged in a wide range of marketing competitions, from competitions induced by

companies involved in communications and entertainment services such as DSL providers,
cable operators, DTH providers, digital and analogue terrestrial television providers, service
providers making use of new fiber optic networks, telecommunications companies, home and
mobile broadband providers to entertainment products companies like betting and gaming
companies, companies developing new technologies, suppliers of news, information, sports
and entertainment. The growth of established competitors such as VM and BT Vision remain
visible threats, however VM limited availability and BT’s limited product offering reduce the
likelihood of them overtaking BSkyB as the market leader. Apple and Boxxee Box have
recently launched services on the basis of live streaming, while Xbox, Google and YouView,
are set to launch new products into the market. This increase in competition and variety of
service offering presents a challenge to BSkyB.
The role of government is extremely relevant and remains a increasingly important factor.
BSkyB operate in a highly regulated business environment. They have to follow UK and
European Union regulations. The regimes that affect the group's business include
broadcasting, telecommunications, competition (antitrust), gambling and taxation laws and
regulations. Changes in regulations relating to one or more of licensing requirements, access
requirements, programming transmission and spectrum specifications, consumer protection,
taxation, or other aspects of the group's business, or that of any of the group's competitors,
could have a material adverse effect on the group's business. It is also not certain that group
will succeed in obtaining all requisite approvals and licenses in the future for its operations.
Change in these regulations limits the group’s flexibility and competitive abilities in the market.

FIVE FORCES ANALYSIS

17
Threat of entry

New entrants to an industry bring new capacity and a desire to gain market share that puts
pressure on prices, costs, and the rate of investment necessary to compete.

The threat of entry in an industry depends on the height of entry barriers that are present and
on the reaction entrants can expect from incumbents. If it is low, the new entrants can expect
little retaliation from the incumbents, the threat of new entry is high and the existing
competitor’s profitability is moderated.
Barriers to entry

1. Supply-side economies of scale. As mentioned earlier, BSkyB has 9.9 million subscribers,
which the average revenue per user is £508. Therefore they own a large market share and
by having larger volume of sale they can enjoy lower costs per unit, since they can spread
the fixed costs between more units. Thus new competitors need to come into the industry
on a large scale in order to be successful.

2. Demand-side benefits of scale. Also known as network effects. This is observed in

industries which a buyer’s willingness to pay for a company’s product increases with the
number of other buyers who patronise the company. BSkyB brand is well known and
according to 10% churn rate, which is decreasing each year, this could be said that
customers are more or less satisfied with the brand. Therefore this is difficult for new
entrants to establish a brand image like BSkyB at the beginning of their entrance.
3. Customer switching costs. This usually includes fixed costs that customers have to pay
when they want to change their suppliers. All of the three, TV, broadband and home
telephony which the company provides have considerably high installation costs for
customers, therefore it avoids them to easily decide to change the provider.

The power of suppliers

Powerful suppliers capture more of the value for themselves by charging higher prices,
limiting quality or services, or shifting costs to industry participants. The group is dependent
on British Telecom (BT) to conduct some of its business operations. The group's Sky Talk
relies on telecommunications services from BT. In addition, the group uses a series of
products from Openreach, a BT group business, within its local loop unbundling (LLU)
operations. These are the collocation space and associated facilities to house the central
office equipment, backhaul circuits to connect that equipment to the group's network and
finally individual copper lines that go between the central office equipment and the end user's
house. Outside of the group's LLU areas it uses BT Wholesale's IP stream product to provide
broadband connectivity to end-users. The group purchases these products from Openreach
under terms and conditions outlined in legally binding undertakings given by BT and accepted
by Ofcom. These stipulate that the group buys these products on a fully equivalent basis
when compared to other operators (including other parts of BT) who supply broadband,
telephony and network products and services.

The group's dependence on BT will affect its operating performance and ability to service, if
either Openreach or BT Wholesale fails to provide their offerings in timely and at reasonable
cost.

Power of Buyers

In this case buyers are families who love watching TV, and indeed the monthly charges is
high enough to prevent major TV watchers to subscribe the service. However, the existing
users have not too many options to choose from, since the service that BSkyB is providing is
a unique service and people will find it difficult to find an equivalent service. In broadband and
home telephony sector, users have more opportunity to negotiate on the price since the same
service is provided by other provided by different prices and options.

19
In this industry the installation costs counts for a considerable amount of money for customers
and each new provider wants to install its own equipments. Therefore it makes it more difficult
for the users to change their mind and change the provider.

The threat of substitutes

A substitute performs the same or a similar function as an industry’s product by a different

means. For this industry the thread could be from Internet driven TV services, which have
higher quality, less interruption and maybe less cost.

Rivalry among existing competitors

The group’s competitors include: British Broadcasting, Channel 4 TV, Channel 5

Broadcasting, ITV, RTE Commercial Enterprises, and TG4. It also faces competition from
Virgin Media, Tiscali, British Telecom, UPC Broadband (a division of Liberty Global) and Boxer
DTT. Price discounting, new product introductions, advertising campaigns and service
improvements by competitors can affect the groups market share. At this point BSkyB has a
good position in the pay TV industry comparing its competitors but it still needs to convince
more people to subscribe its broadband and home telephony service.
 THE FUTURE
OF BSKYB

INTRODUCTION

Having analysed the current position and performance of BSkyB, it is apparent that both
BSkyB and the markets it operates in have changed significantly over time, a trend which is
set to continue into the future. The pace of future changes will undoubtedly quicken as
increasing attention is paid to new technology. In addition to this further uncertainty will be
added through the expected legislative changes the new coalition government introduce and
the continued economic uncertainty and inconsistency, all of which help shape the ever
changing social needs and expectations of consumers. The future competitive environment is
summarised through an applied five forces analysis (Porter 1980) in Appendix A.

21
 TV CONTENT

BSkyB main business is as a multi-channel TV provider and as such it is important to

continue and develop the elements of this which have continually provided success. The core
product of the TV channels and programming require continued investment of both time and
effort. Sky must continue to ensure that they have first access to the latest movies and
biggest programs and series. In addition to this, Sky has long been synonymous with sports
coverage and in particular football. Sky’s dominance of coverage has lead to many critics
arguing that Sky has a monopoly over it, and it is this belief which has prompted the
breakdown of sports coverage into packages (as opposed to a whole), and Ofcom's demand
that Sky lower the rate it charges other providers for access to its' sports channels by 20%
(The Telegraph). To prevent future legislation Sky must appear to be offering value for money
to both Sky customers and other channel providers wanting to offer sports coverage. Sky has
already increased its range of programs as part of a market development strategy (Ansoff
1957) with the inclusion of Sky Arts as part of a wider shift from a undifferentiated strategy to
a differentiated strategy.

TECHNOLOGY

We have already outlined how BSkyB’s performance throughout the 90's was largely
dependent on this core offering channels and programs whether developed or purchased.
The emergence of Virgin Media as a serious competitor and further competition from
FreeView and BT (amongst others) have forced Sky to develop the periphery and
augmentation of its products with the development of Sky+, SkyPlayer and video on demand
functions. Whilst programming remains important and central, the augmentation of it is where
the greatest innovation and therefore development can occur.

Additional technology has seen the phased introduction of HD television and more recently
3D television. Virgin's Vbox and their 3D functions were launched before Sky's, yet Sky's core
competency of developing and successfully implementing new technology has seen recording
through the channel provider being referred to by many as “Sky plussing it”. With this now a
generic term, it is referred to frequently which increases the status of the service and acts as
an additional promoter of it. Sky must continue to invest in the latest technology and must
plan the implementation of it.
New technology is allowing smaller parties to link their services. Samsung have recently
revealed a TV with the capability of adding apps as with mobile phones. This will allow the
linkage of BBC, ITV and Channel 4 services as with the new YouView service, but the real
value is added through the addition of Love Film, Skype and YouTube.

Kotler and Anderson (2006) outline four key areas that have shaped the “digital age”. The
explosion of the internet and new intermediaries are somewhat interlinked and in relation to
BSkyB’s activities, the creation and development of SkyPlayer is a clear indication of this.
Digitalization and connectivity have been implemented through Sky+ and social networking.
The fourth element of the digital age is customization, and while some efforts have been
made such as being able to select packages, this is an area of relative underperformance.
Introducing a greater degree of customization of packages and tailoring of pages on the Sky
website or even adding tailoring to Sky+ could help customization drive BSkyB forward.

COMPETITION

The industry is described as being “recession proof” (Mintel 2009), which is how Sky and
Virgin have been able to increase their customer base despite the introduction of the lower
cost options of FreeView and Freesat. Sky however faces new competition from YouView
(which brings video on demand to a FreeView type service) and increased competition from
Virgin, who has announced plans for an updated video on demand service that, will be
powered by Tivo. This results in an improvement in the standard of competition, but the
branding and quality of Sky+ mean that in the immediate future the Sky will not suffer a
significant loss of customers. Despite not representing an immediate loss, it does represent
an area of future action for Sky, as it is imperative that their service remains significantly
superior (especially if a higher price is being charged), and therefore further investment in the
development of this specific area is needed. A map of the competition in the market is shown
in appendix B.

CSR

BSkyB have made efforts to increase its corporate social responsibility efforts. Intiatives such
as the ECB's Coach Education Program have been supported by BSkyB. CSR efforts in
23
relation to the development of sport have helped offset concerns over BskyB’s monopoly of
coverage, as shown by sporting governing bodies writing to Ofcom I support of Sky. Similarly,
projects such as the WWF project and BSkyB carbon reducing efforts, help prevent and
eliminate concerns over BskyB being an exploitative multinational organization, which
improves the reputation and brand, and reduces future legislation. Despite these efforts,
elementary mistakes are still made as “Sky tend to treat regulators as an object to be bullied
with intimidating legal tone” (Sabbagh 2010). This needs to be changed so that where
possible Sky work in unison with regulatory authorities and practice greater self-regulation to
limit future detrimental law changes.

ROLE OF GOVERNMENT

With the new coalition government still in its infancy, they have yet to establish an apparent
perception of BSkyB or approach to managing the media and markets. Conservatives has
historically favoured a market led approach which would favour BskyB, and provide greater
flexibility for them to operate. The recent merger of the OFT and Competitions Commission, is
part of a wider “cull of the quangos” (Osborne 2010), and representative a liaise-afire
government approach.

In the new year the government will be increases VAT to 20% and although all of the 2.5%
increase will not be passed onto customers, both BSkyB and Virgin Media are expected to
increase prices. Although this report has stated that price is not a major factor if content and
quality is good enough, the increase in subscription fees amidst the increased competition
from lower continual cost options is far from ideal. Longer term, the fact BSkyB produce their
own shows and have established links with other program producers means that the probable
eradication of the ban on product placement (Williams 2010), will create an extra revenue
stream and allow Sky to control this, whereas other providers who are dependent on program
producers will not, presenting a competitive advantage.
 TARGETING AND SEGMENTATION

Sky TV has been aimed at the mass market and efforts have been made to target an older
audience in accordance with the demographic changes in the UK through having celebrities
such as Helen Mirren and Parkinson, explaining the ease and benefits of technology such as
Sky+. The percentage of the population in the 65-85 category looks set to increase further to
approximately 20% of the population by 2034, (Office For National Statistics 2010), threfeore
greater efforts have to be made to ensure that programming is appealing to this audience and
that any new technology remains accessible to them.

Younger affluent customers make decisions based on a variety of factors, not just cost and at
present they are not being accounted for (Mintel 2010). We used a questionnaire (Appendix
C), to gather information from students at the University of Birmingham as they are soon to be
young affluent customers. The research supports the suggestion that price is not paramount,
it also shows that Sky is viewed as the best provider of TV channels but that Virgin is better
provider of a “bundled” service. In addition to this, our research shows that the mobile phone
element is not that important to this segment, rather future custom will be dependent on new
technology and in particular internet speed. The government does have plans to increase the
speed of internet in the UK which will enable Sky to improve its' internet speed, however as
Virgin Media has benefited from high-speed fibre optic, BSkyB should be investing to further
develop its' internet service and advertise the benefits of it.

25
 CONCLUSION

Clearly, BSkyB is in a market which is facing substantial change, as they diversify into new
markets with new products, organisations from other markets are doing the same. The key for
the future is to continue to invest in developing new technology and continue to stress the
high level of service they provide. Irrespective of the current financial crisis, a decision to try
to compete on price would inevitably be detrimental. The future should be focused, BSkyB,
should look to be the highest quality provider, an idea already supported by products, services
and brand name. Further development into bundled services is important but only when it
adds value to the core service of TV provision. The growth of HD and 3D can help maintain
BSkyB’s position as market leader.

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