Sky beware, sunset may be coming

MIKE O'DONNELL
Last updated 05:00 29/06/2013

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OPINION: The combination of foul weather and closed schools saw my family stoke up the fire and spend some quality time catching up on movies at home last weekend. One of my daughters' favourite wet-day movies is Cowboys & Aliens, an overproduced and outrageously conceived sci-fi western tale of nasties from outer space farming humans and stealing their gold in the Wild West.

However, rather than heading down to the local video store, my kids increasingly just go to the web to satisfy their cinematic appetite.

In this case the entire final cut of Cowboys & Aliens was available on YouTube. So rather than burn up fossil fuels and pay money, they just snuggled down on the sofa and enjoyed Daniel Craig and Harrison Ford for free.

New Zealand's been late to the online video party, having been stuck with a small stable of free-to-air TV broadcasters, plus a dominant subscription provider in the form of Sky TV.

Over time Sky has proven itself to be very commercially successful at operating in this backwater, both by entering into some apparently eye-watering contracts with those who bundle its service (like TelstraClear and Telecom), and also by outnegotiating free-to-air broadcasters for the screening rights to some pivotal sporting events.

Two weeks ago a previously unheard of media company, Coliseum Sports Media Management, beat Sky at its own game.

In an audacious move, Coliseum signed up the rights to TV coverage of English Premier League football matches. It will broadcast the entire competition online and TVNZ will show one game on Sunday plus a highlights show.

Coliseum's pay-per-view website at premierleague pass.com launches in August and will show all 380 games live, with 250 available on-demand for about $150 a year. The TVNZ piece is smart as it shows a public-facing generosity and doubles as tease marketing.

There has been more change in paid broadcasting during the past 14 months than there has been in the previous 14 years.

In May last year, Swedish online music streaming service Spotify launched here with its monthly all-you-can-eat peer-to-peer service.

The service gave Kiwis access to 16 million songs for little or nothing. So as well as putting a further nail in the coffin of record companies, it looms as a damn decent threat to commercial radio.

Soon afterwards, Quickflix launched its video streaming service in New Zealand. Punters can consume movies and TV shows on their computer, TV and PlayStation for $14.99 a month, or tuck into new release movies for $6.99.

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Eager to push back, Sky launched its Igloo prepaid service via a joint venture with TVNZ, offering customers free-to-air content via a $200 set-top box and some pay-per-view channels (for an extra $24.99 a month).

Despite the fanfare, Igloo has failed to deliver. In fact, Sky recently reduced its target from 50,000 subscribers to just 19,000 for this year - a sobering number when the service needs 40,000 customers to break even.

Why? Partly because at $199 the set-top box is about twice the price of a Freeview receiver, and the channels offered in the premium service are not exactly riveting.

Then, hot on the heels of last week's Coliseum announcement, the third largest ISP, Slingshot, announced it was removing the geo-block for its customers, the digital voodoo that has prevented Kiwis from accessing the big overseas providers like Netflix and Hulu. And while Slingshot has been careful how it's positioned its new "Global Mode", it means video content in Godzone will increase exponentially.

The biggest challenges are still to come. The first will be the rise of a local video-on-demand company, and that can't be far away.

The second will be the network effect of middle New Zealand waking up to the fact that the web is full of free movie content. First it was just the geeks who realised this. Then the kids found out. Once their folks wake it will become dinner-party conversation and the genie will be truly out of the bottle.

For a long time, Sky was the only shop in town with quality content at commercial rates. It proved incredibly adept at gathering rights to content and selling it. But quality content is no longer scarce and the commercials are being ravaged via the disintermediation and disruption of the internet. Back in March, Rupert Murdoch's News Corporation sold its 43.6 per cent stake in Sky. This followed Todd Corporation offloading 11 per cent of Sky stock a few months earlier.

I'd guess they took a long view about the web-fuelled disintermediation on the horizon and decided there was a new sheriff in town.

At one stage in Cowboys & Aliens one of the protagonists, a rather fetching-looking cowgirl, emerges from the ashes of her destruction, phoenix-like and with more power than before.

I'm not sure the same will be true of Sky.

Mike "MOD" O'Donnell is a professional director and eCommerce manager. His Twitter tag is @modsta and he's always had a thing for cowgirls.

- BusinessDay

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