Take one look at Comcast’s second quarter results revealed yesterday and it becomes abundantly clear why the NBCUniversal owner was so keen to acquire UK pay TV operator Sky. But a shifting content strategy for the Jeremy Darroch-led company has also emerged in the post-Murdoch age, which could spell opportunity for European producers.
1. A numbers-backed strategy
First things first: Sky added an impressive 304,000 net customers across its pay TV and OTT offerings in the second quarter. That means it has around 24 million so-called ‘customer relationships’ across Europe – but more than that, Sky accounted for the lion’s share of Comcast’s net growth of 456,000 new customers.
With immediate brownie points for such a haul presumably secured with its new owners, Comcast CFO Michael Cavanagh went on to reveal in yesterday’s earnings call that Sky’s growth was primarily driven by streaming subscribers. Further, he noted, its customers were spending 20% more time watching Sky content than they did at this time last year, with viewing boosted by shows such as Game of Thrones from HBO and original drama Chernobyl. Both were exclusive on Sky Atlantic.
With that in mind, the decision to double down on more original programming revealed last month is a no-brainer, particularly given that WarnerMedia has named its forthcoming streamer HBO Max and is looking to take it global. For Sky, the long-term future of its long-running deal for HBO shows looks uncertain, meaning heavyweight originals are more important than ever.
2. Sky Studios revs its engines
Comcast has backed new production banner Sky Studios, driven by CEO Gary Davey and chief commercial officer Jane Millichip, as the vehicle by which this original programming will be procured. The Europe-wide development and production outfit plans to double its investment in programming over the next five years, creating new productions for Sky channels, NBC broadcast and cable channels, and Universal Pictures, as well as for other distribution outlets.
As such, it will have some budgeting might, a prerequisite given the spending power of streaming giants Netflix and Amazon. And it will be further emboldened by its $250 million co-production deal with HBO – indeed, its first international project is six-part drama The Third Day, which is being produced with the US cabler. Whether that copro deal will be renewed remains to be seen, but it seems Comcast is prepared to back Sky Studios with telco-sized spending.
3. European programming is key
Sky CEO Jeremy Darroch (pictured) could not have spelt it out any clearer: “In terms of Sky Studios, really, our focus is on own originated content and European content. And I think this is going to be extremely powerful for us because there’s a big opportunity to develop European stories at a scale that we’ve never really seen before.”
The comments reflected those of Davey last month, who said he wanted to “work with the whole creative community, from individual creators to the big independent producers to produce more of the original content our customers love.” And while there was little surprise that Game of Thrones’ final season was such a hit for Sky, the critical and commercial success of Chernobyl was perhaps less expected.
The nuclear disaster drama was, Darroch said, “a difficult subject… but one of the great sort of European stories over the last few decades.” Producers with similar sized-ideas might well be licking their lips at the assumed demand for more such series and Darroch was forthright about how Sky Studios would set its course.
“There’s a real spot for us to drive into now [with] Sky Studios. It will be the vehicle that we’ll use to do that and that will complement all of the acquired programming that we are getting from around the world – but it will be very, very different as well because it will be essentially European. So it fits really very well with us.”
4. Acquisitions are on the decline
The strategy to ramp up originals goes hand-in-hand with a declining demand for buying in other people’s content. “Of course, we’ll displace some of the acquired programming with more of our own originated content as part of our investment thesis,” Darroch conceded, although he chose not to go much further in discussing what that could mean for those distributors currently supplying third-party content to the company.
5. Streaming partners are in
Questioned about the impact of new direct-to-consumer (DTC) initiatives on Sky’s pipeline of acquired content, Darroch said he expected such services to forge partnerships with pay TV providers – including Sky. The company could be “a really fantastic partner” for new DTC players, he explained, ahead of the launch of SVOD’s from giants such as Disney and WarnerMedia or “anybody else who wants to develop a D2C business in Europe.”
“The first question they’re going to have to ask themselves is where are all the pay TV customers, and on the whole, that means Sky. I would hope that with the relationships we have, we’ll continue to be able to work with many people to help them and us be successful,” he said.
6. Flexible financing
Darroch was clear that while the current strategy will see Sky Studios doubling the amount of originals currently produced by the pay TV operator, further money could be injected if required. “We’ll double the amount of original programming we have and we have the capacity to take that further quickly if we so want to,” he said, adding that over the past quarter, viewing of Sky’s original programming “was more than double what it was a year ago.”
On top of that, he said, there remains a “secondary market” for its programming, with shows being sold in market or to other retailers. “So for example, we’ve got relationships with all the telcos and the cable businesses in Europe to sell our content to their customers. And our revenues are up something like 30% in terms of content sales year-on-year. We’ve got a lot of good options available to us, and we’ll just have to see how commercial negotiations pan out.”
Competition will of course be tough – existing US-based streamers such as Netflix are far ahead on overall spending in Europe – but for the continent’s scripted business, Sky’s increased appetite and its importance to parent Comcast look like something to take advantage of.