Saturday, 27 June 2009

Sky gets limited?

Media students always seem to baulk at the idea of studying numbers, yet understanding the business models of production, distribution, and exhibition are crucial to anyone contemplating entering any of the creative industries.

News breaks that OFCOM, the UK media regulator, is planning to cut the prices that Sky, Rupert Murdoch's satellite outfit, can charge to third parties, like Richard Branson's cable-based Virgin Media, for hosting Sky channels like Sky Sports 1. 

This story is a classic case of how the media operates in what is often tantamount to a strange act of parasitic content sharing and money shifting.

The linked BBC article covers the finer details well, so I won't attempt to repeat those here, but do have a look at them.

The headline issues are as follows: 

  • Sky paid a fortune to the Football Assocation et al for the rights to show football.
  • In addition, there are production costs for filming, editing, promoting and commentating on matches. This is a cost Sky picks up. 
  • It recuperates some of this cost via in-match advertising plus the monthly subscription fees it charges to viewers. So, there's a clear relationship between production and exhibition, in terms of Sky itself, which not only produces the content but owns the satellites, dishes and decoder boxes that allow people to watch its content.
  • However, in order to maximise viewers, avoid claims of monopolizing the market, and recoup more of it initial outlay, Sky effectively distributes itself, reselling and distributing its channels with other media outlets. Virgin Media is a good case in point.
  • This creates an interesting symbiotic relationship between Sky and those who appear to be its competitors. Although it may seem to fly in the face of business orthodoxy, Sky is not giving away its content, nor is it diluting its brand. It is expanding its distribution channels by re-selling itself, at a profit, to companies serving non-Satellite based markets.
  • The risk in terms of having its wholesale prices cut, as OFCOM wants, is that the price for various channel packages will fall to a point where Sky is only just covering its costs. For a business, especially in a recession, this is bad.
  • However, if seen as an opportunity, given the right marketing mix Sky could see subscriber numbers rise, and in turn be able to charge more for advertising; except, we're in a recession and advertisers don't have any money to spend in the first place.
At the moment Sky's response is to say it will mount a legal challenge. However, it seems possible that OFCOM will have its way. Maybe Sky knows this, but hopes the cost of dragging out a case might be less expensive than seeing re-sale prices plummet at the bottom of the recessionary economic cycle. You see, the world of business media is complex, inter-connected, and central to what we get to watch.

Still think the numbers game is tedious? Think again. It drives the majority of decisions affecting all aspects of what we see, read, hear, and watch. 

To put it another way: I may not be an engineer or any good at DIY, but I can still appreciate the genius of engineering when I peek under the bonnet of my car and note the many complex sequences that occur, allowing me to get from A to B in comfort and ease.


Don said...

Sacha: Excellent post. Looking at an industry's infrastructure and issues is an eye-opening experience. So many sit and curse the darkness instead of attempting to understand the complexities behind the difficulties. Easy solutions don't work because the problems are hard.

I especially like your comment, "Still think the numbers game is tedious? Think again. It drives the majority of decisions affecting all aspects of what we see, read, hear, and watch."

It also drives many of the decisions in a family, school, company, and nations. Tedious-ity requires tenacity if you wish to solve difficult problems.


Sacha van Straten said...

Hi Don,

I think we'd both agree that the risk of results-driven education is that often it leaves little time to stop and reflect on bigger issues.

I wonder if the analytical micro-macro analysis I have written about should be termed 'Tediosity', adapting your version? 'The need to understand the bafflingly complex in order to make progress.' Maybe I'll add it to and see what happens?