Reaching for the Sky
Sky enraged pub subscribers during the summer by increasing the cost of its standard package by 18% and Prem Plus by 300%.
The PMA Team meets its business division director Iain Holden
Q What was your background prior to joining Sky?
"I started off as a graduate with Mars before going to Pernod Ricard as a sales manager. In 1986 I went to Australia for the America's Cup and spent nearly two years travelling as well. Then I came back and joined a company called European Cellars that was a joint-venture between Whitbread and Allied and then I joined Allied Breweries, responsible for the general marketing at Ansells. I think of myself as working in the drinks industry for a total of 21 years, bearing in mind I came to Sky in 1993 to set up the commercial operation which was predominantly about the drinks industry. My time at Sky is spent understanding the drinks market. The implications of major change in the industry affects Sky Business. So, for example, when Sunday opening started that had a major implication for Sky's product. We also lobby and campaign on industry issues. If you don't understand your marketplace, you can't deliver your product in a correct way."
Q What's the value of Sky to the pub trade?
"We are a part of pub entertainment, a product that can draw people in. People like going to the pub to watch sport with their mates and it's a similar atmosphere to the football ground. We're something in the portfolio for pubs alongside quiz nights, karaoke or a live band. This season, 4.8 million people a week are going to the pub to watch Sky up from 3.3 million a week last season. Saturday First (the evening service showing recorded matches from earlier in the day) has also been a tremendous success as background viewing in the pub 470,000 a week are watching Saturday First. The first Saturday of the season saw a two-million-strong pub audience for Prem Plus, creating a new day where people are choosing to go to the pub."
Q Do you have a favourite pub for watching Sky Sport in?
"The Famous Three Kings in West Kensington, west London, which is a Spirit managed pub, is a very big, professional pub that really does sport well. The licensee is passionate about sport, understands his customers and creates an atmosphere really works it."
Q Are the number of pub subscribers for the standard Sky package going up this season despite price increases?
"Year on year, our subscriber numbers continue to grow. We now have about 35,000 pub and club subscribers. It's a reflection of the fact that the value[in having Sky] is there. We've got to say: what is an audience of 4.8 million a week worth? If, on average, someone spends £10 each visit it generates more than £2bn a year for the industry. And audiences are contin-uing to grow at a staggering rate. Our revenue from pubs is about £130m a year. There are a lot of outlets out there making a lot of money out of the service."
Q Why did Sky standard subscription charges increase by 18% in the summer?
"The primary reason is that our costs have gone up. The last Premier deal, which ended at the start of this season, cost us about £670m. The current deal cost £1.1bn an almost 100% lift. We are doubling our costs in providing that product but we haven't passed on a 100% price increase. I have to judge the cost of providing that product against its value in the market place. We can clearly see that the value of the product to the marketplace is going up. Individual pub outlets have to make a judgement [on whether to take Sky]. We have created a banded pricing structure to try and make charging fairer. If we had a single price, the little guys out there wouldn't be able to afford it. The bigger guys would be making a killing on it because they'd be getting the service at an average price."
Q What percentage of the people subscribing to Prem Plus last season are buying it this season after the 300% price increase in the summer?
"It's about 70%. I knew we would have a dip because people hadn't experienced Prem Plus as a new product, creating a new day (of football in the pub). We've created an extra two million people on the first Prem Plus Saturday this season who went to the pub to watch a game. The overall audience has gone from 3.3 million per week to 4.8 million. In the main, it's making more people want to go and spend more money in the pub. The pubs that have taken Prem Plus are getting a huge benefit from taking it. We wanted to create a new day for the trade to create a new opportunity Saturday is now a great day [of live football]. More people have taken Prem Plus than I thought would do. And it will be a building process over the next couple of years, whereby licensees see the opportunity of Prem Plus."
Q The result of a recent ALMR (Association of Licensed Multiple Retailers) survey on Prem Plus subscriptions among members this season indicates Sky has quadrupled its income from Prem Plus. Is that right?
"Yes, but for a different product this season. The cost of providing that is very different because it's a different rights deal [for Saturdays]. The only questions for licensees are: is this new package working for me? Do I make more money out of this? Some people have wanted to understand Prem Plus better before signing up."
Q Did you get many complaints during the summer from pub subscribers about the new increases?
"I don't think anybody likes a price increase whether it's 1%, 10% or 20%. Even if you're getting a 100% better benefit, somebody puts your price up by 20%, you're not going to like it. But the reality is that, likewise, we're not happy about our price increase [in buying football rights]. We have to make business decisions. Are we acting fairly? Yes, we are. Has that been tested? Yes, it has. The ALMR and the industry has taken us to the Office of Fair Trading and asked the question time and time again. Each time the answer has come back: Yes, Sky is acting fairly.' Prices have gone up, but the value to customers has gone up."
Q How do you respond to complaints from pub customers that Sky is "greedy" and "arrogant" in putting prices up?
"If our costs weren't going up and we were just taking and taking, level that at us. But that's not the case. We're seeing the numbers [of customers for pubs] are growing [as a result of an improved service]. Our pricing started off low the average price should have been £100, not £30, at the beginning. I believe the differential between the cost of the service and its value has grown over the years. We've been adding value to the service."
Q Will the cost of Sky increase again next year? "Is the cost of providing the product going down?
It's not just Premier League rights; we've just bought the rugby union rights and we've got the cricket rights outstanding at the moment. All I can say is that we will relate the cost of providing that product to its value in the market place."
Q How do you respond to claims that Sky's strategy is to encourage domestic subscriptions by discouraging pubs from signing up by imposing ever-higher charges?
"If that is our policy I am an absolute failure at it. Our numbers of pubs are growing, our audiences are growing and our domestic market place is growing. The two sit extremely happily side by side. As a Sky customer, I want to choose where I watch; sometimes at home, sometimes at the pub. I am a rugby union fan and will watch matches in the pub but also equally want to watch, on occasions, at home. Over half the pub audience has Sky at home. The answer is: categorically not. It's absolutely not our position."
Q Is it true that Sky has virtually stopped prosecuting, in the past year, individual licensees showing Sky on a domestic cards foreign cards and decoders?
"There are been 500 criminal prosecutions and 300 civil actions in the past 14 months, some of those settled out of court.
