Don't be scared of Sky

Now's the time to ground the high-flyer

The main alternative for most people is Freeview, unless you happen to live in a cabled area, when of course you would look at NTL or Telewest. In fact, it's interesting to look at Sky's penetration rate in those areas, as it gives some gusto to the idea that people's motivation for subscribing to Murdoch's platform is less than brand, and more to do with having no other viable option. And Freeview is a very attractive idea. It has its weaknesses, but it's cheap, broadcasts high-quality programming, and has good availability. What it lacks is a return path, or flexible bandwidth for additional channels and services. But imagine Freeview with thousands and thousands of movies you could watch whenever you wanted. Now that's a killer idea, and a Sky-stopper. Now imagine it with unlimited channels, many years of video content, advanced interactive applications and integrated into your telephone, mobile, PC, games console and the internet. That's a killer more deadly than News Corp's "poison pill" takeover defences.

Not infallible

Let's not forget that Sky has made some truly disastrous mistakes in the past. When it gets it wrong, it really, really gets it wrong. Just ask any of the staff who were laid off a few years back after the company's dismal venture into so-called "T-Commerce". It was an abject failure that cost many millions of pounds, and brought home the realisation that people don't even use keyboards to watch TV, let alone buy things on their screen with credit cards like they do over the web. The software on Sky's set-top boxes is made by a Thomson-offshoot called OpenTV, whose ANSI C-based development environment is so tedious that it takes many months to produce any kind of interactive application - which is especially dumb considering TV is a topical medium where content needs to be changed and updated by the second. It was so bad, Sky had to buy a company that made an OpenTV-based WML ‘microbrowser' that enabled it to actually get features produced in a realistic time frame. Not that any of those were remotely cost-effective for anyone to get involved in of course.

Its supposed movie download service was due to launch last September, but didn't make it until early this year, and the P2P system being used (made by Kontiki) is a blatant rip-off of the BBC's iMP media player that simply moves traffic to the edge of the internet from the core, rather than allegedly relieving distribution costs. We probably shouldn't start on Sky's marriage to Microsoft or its belief that Windows Media Centre will be the next set-top box we all use. The latest whim is its business TV portal, where you can produce your own screens and information, or display on Sky-powered televisions everywhere. Quite why you'd be browsing Sky's interactive sections in the office is beyond most of the people I've consulted on it.

But the most wondrously enjoyable fact that should encourage ISPs, telcos and interactive service providers to pull out their weaponry and take Sky on, is that despite all the very smart people he employs all over the world, Murdoch just doesn't "get" the internet. In fact, he's so hilariously out of touch and late to market that he may not get a significant foothold without writing cheques that are way above market value. There's nothing quite like the spectacle of someone trying to buy their way into an industry they fundamentally don't understand. Analysts say he is a cunning, wily old fox that held back from the dot-com boom as he saw the crash coming, and is taking his time to make his moves with the brand new Fox Interactive division. News Corp recently paid over $500m for Intermix, which owns the audience of MySpace, apparently the sixth largest website in the world. Whether that was a lightning bolt of superbly insightful business sense or part of a desperate last minute buying frenzy to keep up with the joneses remains to be seen.

The industry rumours are that Ofcom is going to give Sky a pretty good kicking this year, as it has presumably become bored with slapping BT around. Given Murdoch's ability to get politicians to bend over to grab the proverbial shower soap, it will be interesting see just how hard the knuckle-rapping actually is. There are many in TV-land who believe they are long overdue a telling off for their behaviour. Protests aside, BSkyB has an effective monopoly, as there are no other direct satellite TV companies offering an alternative. But that's not the problem - the problem is that it owns TV channels as well as the platform. How can you not have a conflict of interest in such circumstances? BT has been split up, deregulated, unbundled and thrown about like a rag doll, and even Microsoft have fallen foul of the European commission. But not Sky.

Still gambling

Sky Bet Vegas was launched just weeks after all competitive channels offering gambling-like services were dubiously ordered to cease and desist transmission on the basis that UK law was ambiguous. There are countless other examples of blatant abuse of position having occurred and nothing has been done - from the subtlest wrongful designation of channel numbers on the EPG, to blatant bullying. If you publish channels on a platform you own, your simple daily operational activities will place you in an immediate conflict with your responsibilities as a platform owner. It's no coincidence that the BBC has had to fight tooth and nail to remain in first place on the EPG as the main public service broadcaster. All we can hope is the forces that control the broadcasting of sports events (Premiership football, golf, cricket) will also act to curb Sky's 13-year dominance of pay-TV sports, as fans are already in open rebellion. Reserving one out of six packages of broadcasting rights is nowhere near enough and does not provide "choice" or "value" to anyone.

The Sky takeover of Easynet was in itself a very curious purchase. From the outside it seems logical - it has its own nationwide 21CN-style MPLS-based fibre network, considerable existing investment in local-loop unbundling (just fewer than 200 live exchanges), a consumer subsidiary, is respected by the city, and has had a close and trusted relationship with Sky in the past. Buying the company immediately gives them an entry point to provide broadband services. But is that really the case? Easynet is also fundamentally a B2B company, supplying just over 20,000 business customers across the country. UK Online was infamously late to market with DSL, has been dogged with provisioning problems and has a very high cash burn rate (e.g. national advertising campaigns etc), all with very few subscribers to show for it in comparison to rivals. Easynet's network as a whole is poorly managed and not ready for video services - in fact, most analysts are deeply sceptical that the money Sky intends to invest in expanding its LLU operations will actually be even remotely enough to get the job done. The figures just don't add up.

Make me a piece of your channel

One very common misconception about Sky is that it owns more of the infrastructure than it does. Ultimately, it owns the brand, a few channels and the encryption system - not a trivial treasure chest by any stretch of the imagination, but a lot less than most people assume. It doesn't own the satellites, the uplink kit, the set-top boxes or the other critical parts of the delivery chain. It has created a nice-looking little menu system that is installed on one of any number of set-top boxes that collates all the available TV signals being broadcast (their EPG), and the mechanism to decrypt some of the channels that have agreed to scramble their video output with their conditional access (CA) system.

Starting your own channel on Sky is a fairly straightforward affair if you have £500k or so disposable income a year - after obtaining a broadcasting license from Ofcom (issued on demand for petty cash), building your studio and playout facilities, arranging an uplink from an earth station and space on a satellite transponder, Sky is obliged to include you on its platform by statute (anyone can pick up and view your broadcast signal anyway). For that, you pay a fee to be included on its menu. That channel number on the EPG costs less if you encrypt your content so only Sky viewers can watch.

The fact it's so easy to launch a digital channel is slowing poisoning Murdoch's European jewel. Let's face it - Sky is 400 channels of crap and a load of movie repeats. It's a few ripe apples in a barrel of rotten ones. It could save itself years and years of customer complaint time with one simple addition to the menu - a small option named "delete this channel". A huge list of channels (with 80 more due in 2006 alone) is a crass illusion to breadth and depth of content. Sky is far from it - it's a banger race car park of heavily-repeated, washed-up, poorly-produced trash. Scrolling text messages on screen, dating services, programmes using desktop PCs for on-screen graphics and poor audio don't constitute TV, they are extraneous dross that shouldn't be seen in a control gallery, let alone a national TV network.

The latest news is that the car-crash-in-slow-motion Video Networks are positioning themselves to be bought by Sky for a cool £200m (comes with free 45 per cent churn rate). Sky already owns around four per cent of the company and provides the creatively named "Sky By Wire" service direct to HomeChoice subscribers. It was part of a consortium several years ago that offered the then CEO Simon Hachhauser just over £1bn for the company. Presumably, the best thing for Sky to do would be to wait until it completely implodes and then asset-strip in the most brutal fashion. Buying out Bulldog's subscriber base to combine all three ISPs (UK Online, HomeChoice and Bulldog), would then give it close to 150,000 broadband TV subscribers. The blind seem to be becoming quite adept at leading the blind.

Ghostriders in the sky

Now isn't the time to be scared of Sky, it's the time to attack while it's vulnerable. The military say that to have victory you must act in the greatest concentration, and what could be any greater force than an entire industry of telcos and ISPs launching services in Sky's blind spot - in the very niche areas it is infamously bad at and cannot compete in. We may not have the open markets of Europe or the audience figures of North America, but one company does not have exclusive rule over an entire country's entertainment, especially if it is effectively bludgeoning most of its customers into submission by giving them no alternative. Having bite requires a new model, and imagination - the world is not as Sky defines it, it is what we make it.

What do I want to watch? Probably less than 10 per cent of what Sky's dismal, failing waste of a platform has to offer.

© Digital TX Ltd

Digital TX Limited is a London-based provider of technology and consultancy solutions for interactive digital television and broadband media. Alexander Cameron can be reached at

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