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Sky response to Netflix is tepid, late and half baked

By PETER WHITE

Published: 3 February, 2012

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A lot has been said about Sky and the OTT service it has just announced, ostensibly to compete with Netflix in the UK. We'll have to know more about the content that it decides to offer, but to us this is more like Hulu Plus than it is Netflix, and these two co-exist neatly, often on the same boxes, in the US, and potentially have shared customers.

Sky grew into the giant it is today by buying UK sports rights and by cutting big-cheque exclusive deals with US movie studios. The European Commission is currently working out how to stop this, so defending itself in OTT with its movie exclusives is asking for more trouble from that quarter. Netflix is almost certainly going to be allowed to share access to that exclusive movie content at some point.

By Contrast Netflix offers almost no sports, and certainly no live sports, but it has access to something like 30,000 movies - that's all the old movies you could ever think of. Sky, by comparison, has access to a few 100 movies at any point in time, mostly in their first year or 18 months of existence - Sky might buy further access to older classic movie stores, but hasn't so far.

It will be interesting to see how this develops - will Sky customers happily buy access to Netflix, but cancel only their Sky Movie package, or will they keep both or will they dump Sky entirely upon agreeing to take Netflix. Or will a limited, and dangerously regulator patrolled movie service actually hold Netflix at bay? We don't think so.

But we don't think the answer will be apparent for about three years, and certainly the pay TV services in the US, with their full-content TV Everywhere services, have done little to slow Netflix down, but neither has any clear evidence of cord cutting been established there either. Instead the content options are just getting richer, and the tendency to take multiple options simultaneously, has grown.

If Sky makes the service too attractive it will encourage trading down among its own customers, and given that Netflix costs £5 a month and most customers at Sky spend around £45 a month, and much of that on sports, then there is little for Netflix to fear. If Sky prices a new service at £5 too, then why would customers not take both Netflix and Sky OTT services and throw away their £45 a month Sky service, saving £35 a month in the process.

We get into the habit of believing that the companies we are used to, are impervious to a better mousetrap, and most press reports harped on about Sky defending its turf. But instead Netflix will succeed and flourish in the UK regardless of any moves made by local players.

For a deeper analysis go to www.rethinkresearch.biz

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