Thursday, July 01, 2010

Sky gamble on consumer loyalty

The Ofcom ruling in March which forced Sky Sports to reduce its wholesale prices to rivals by more than 20% (in itself more than most businesses operating margin) now becomes "real" with BT's recent announcement that it will price its Sky Sports 1, 2 and ESPN bundle at £20 pcm. Sky have responded in typical fashion and put up their prices forcing BT Vision to probably take a loss on each customer (a sort of replay of the approach they took to ITV Digital).

Therefore when the Premier League kicks off on Saturday 14th August at 3.00pm the cheapest way (outside of the massive level of internet piracy) to watch live Premier League football will be on BT Vision.

Does this mean that significant numbers of customers will churn off Sky and switch to BT Vision on price alone or has enough been done by Sky to broaden the appeal (non sport content, broadband, telephony) that Premier League football is only an element of the decision. If so the next round of rights negotiations will be more nervy for the Premier League and its Clubs.

Sky must be gambling that few customers will in fact switch over - and if this is correct then the Board of BT will be faced with a difficult set of choices in terms of the future cash requirements of BT Vision and whether it has a place in the market. They cannot compete on content so if the consumer decides that even at a discount price they will not switch from Sky to BT Vision (perhaps fearing that BT Vision will go the way of ITV Digital and Setanta) then the vision becomes more of a hallucination.