James Murdoch, the chief executive of BSkyB, and son of Rupert Murdoch, answers your questions in an online Q&A about how television will evolve.
Dick Emery, chief executive of the UKTV group of channels, said of mobile TV: “it is like sex in the open air - a jolly exciting idea but not always practical”. Will we get a new business model successful on mobile TV?
Paolo Landi, Milan, Country Director - Italy, Musiwave
James Murdoch: Leaving aside the reference to al fresco fumbling, we’re at an early stage of mobile TV. The honest answer is that we don’t know yet what is going to work best - whether that is the underlying technology, the business model or the content that appeals most strongly. We’re working with a variety of different partners including all of the UK mobile operators, as well as manufacturers who are moving forward in this space.
We are encouraged by the response so far. There have been over 5 million streams of live TV channels on Vodafone’s 3G network since the launch of our mobile TV service in November - being able to watch channels like Sky Sports News live on your mobile has proved a big success. But it’s not just about consuming content on the move. Mobile technology offers other ways we can add value for our customers. Soon you will be able to book a Sky+ recording from your Nokia or Blackberry so you never have to miss out on your favourite show.
One important thing to keep in mind is the distinction between content portability and mobile distribution. It’s not complete to suggest that people “won’t watch TV on their phones”. That’s not the point. Products as diverse as Sony’s PSP, the Archos portable hard drive or Motorola’s 3G RAZR all in different ways allow customers to consume content on the go. Let’s not expect any one device, however, to be the Swiss Army knife of mobile content. They all do different things – and they are all changing fast.
If the trend to offer TV episodes (or even not-for-TV content) for download to portable devices direct from sites like iTunes (to video iPods) continues, we may see production companies and the online sites profiting while TV companies, such as the ones you are connected to, would not be sharing in the revenue from this digital channel. In other words the value chain would comprise: production company to distribution site (e.g. iTunes or Sony Connect) to consumer. What are your thoughts, and how can your TV companies add value to this distribution model?
Hira Verick, Creative Team Manager, Sony Ericsson Mobile Communications, Sweden
JM: People are definitely going to enjoy watching video content in a variety of different ways and a variety of players, as you point out,may benefit. At Sky, we are really excited about the possibilities this offers. Just last week we launched services thatput Sky content on PCs and mobile phones, so a Sky subscription isn’t limited to the TV set.
High quality entertainment will always be key, butit is how you put the whole package together that makes the real difference for customers. Bringing together content with customer service and innovative, friendly technology has always been central to Sky’s success.
I see a promising role for companies like Sky, as well as other distributors. But the key to our success will be our determination to adapt. The pace of change in the industry is faster than ever. We want to continue to help drive such change. Sky intends to push harder and faster to provide whole-home solutions that really fit into customers’ lives.
Bill Gates declared lately that television as we know it is dead. Do you agree?
Nick Ashton, Utah; Thomas Fideler, Federal Way, Washington
JM: I’m not sure that too many people still think of television as a bulky analogue box in the living room showing a handful of channels that are regularly interrupted by advertisements. If more people did, Bill Gates would probably be right. That kind of television has been dead or at least dying for a long time. Innovation in this industry and adjacent ones has been delivering unbelievable benefits to customers over the last few decades. The pace is accelerating. From PVRs to IPTV to portable devices, it’s hard enough today to define exactly what TV is, or what it will be - but it’s definitely wrong to declare it dead. It’s alive, kicking, changing and growing.
The combination of broadcast - which is so efficient at reaching millions - with broadband and local storage will create fantastic ways for families to enjoy and share what they like. Bill Gates seems to agree - at CES, Microsoft and Sky announced plans to extend Sky’s new broadband service to Media Center PCs.
Do you welcome the potential arrival of Richard Branson into the broadcasting/platform game? Is Virgin Mobile/NTL’s vision of ‘quadruple play’ one which Sky subscribes to?
Shaun McCabe, Trinity College, Dublin
JM: We operate in a highly competitive market today and we have always said that would remain the case. Certainly a number of firms see the same growth potential that we see in the sector as a whole.
It seems, on the face of it, understandable for NTL to pursue a mobile strategy in light of the migration of voice traffic to wireless networks – potentially a threat for them. But what is less clear is how well mobile fits with cable’s existing offering, particularly when considering a pre-pay franchise. The key question is how one fits, if there is a fit, the pre-pay individual choice of a mobile PAYG customer with the deeper, more considered choices a family makes with respect to entertainment and communications for the home.
Having bought Easynet, what plans to differentiate do you have to combat the obvious threats from AOL, NTL, BT, all of which will be operating in the same space with much more experience managing a telecom network than Sky/Easynet, with access to rich media?
Richard Malizia, Business Development Manager, Fibernet
JM: First of all, Easynet has real expertise in managing advanced telecoms infrastructure and is a pioneer in local loop unbundling.
From a strategic perspective, broadband will not only let us add value to our products, but also let us introduce new services in new segments of the marketplace. Entertainment and communications are (finally) coming together to create a new generation of connected services. Families want flexibility and control. They want to benefit from the wave of innovation that is sweeping across the communications industry.
For all the talk about “triple play”, the truth is that cable and telcos are into, or are getting into, content distribution from the perspective of protecting their existing businesses and tariffs in the face of that wave of innovation that actually should be accruing benefits to customers. In contrast, our approach puts entertainment at the core and focuses on making things easy and intuitive for families. Fortunately, Sky has no legacy network investments or voice revenues to protect so we can focus on responding to customers’ needs - and letting our customers enjoy the latest and best innovations.
What will be the key value driver and growth generator for BSkyB - its content distribution business anchored in satellite and internet subscription, or its content production and programming business driven by advertising?
Joaquim Ribeiro, Rio de Janeiro
JM: In December, a family in Nottingham became Sky’s eighth millionth customer. The significance is that now nearly one in three British homes is choosing to tune into Sky. Real long-term value is coming first from bringing a wide choice of the best entertainment tomore and more homes and then helping them watch what they want, when they want it; that’s the heart of what we do. For example, more than a million families have Sky+, a PVR that puts them in control. What’s more, broadband will offer new services and bring more value to customers. I think that the growing number of things you can do on the internet will make the broadband access business attractive for a long time, especially when combined with what Sky offers.
Connecting with a growing number of customers brings us other opportunities as well. Our advertising business has consistently outperformed the market and, in our most recent results, represented 8% of revenues. At the same time, betting and gaming has reached around 6% of revenues. So overall, we see subscription at the core with additional revenues from advertising and other services growing on the back of this. Importantly, we think this is the most sustainable model for investment in high-quality programming.
When shall we be able to watch for free on the internet the channels that are available today on TV in each country of the world?
Anastasia Potter, Switzerland
JM: We all want things for free - that’s human nature. But free doesn’t always go hand in hand with high quality or innovation. In the UK, we’ve seen that competition for sports rights has led to big investment in the country’s most loved game. With help from pay-TV, the UK attracts world-class players who play in modern stadiums for millions of football supporters. Money flows to the grassroots to keep the future of the game healthy as well. Right now, you can see a range of television content on the internet - some free, some paid for by advertisers and some that requires a subscription. There’s no question that this availability will grow – as long as rights holders and distributors take a practical view – but that requires a much longer discussion.
Do you read blogs? Which are your personal favourites?
Patrick Phillips, New York
JM: Yes. Like nearly everyone else I use the internet for a lot of things. I love the immediacy and speed - but I also see so much untapped potential for building communities and increasing interaction with great entertainment, both user- generated and more “traditional” content. In terms of blogs, HDTVUK.tv’s fast updates and threads are creating a real buzz about high definition TV.
Sky has recently launched Sky Sports and Sky Movies downloads via broadband. The launch of High-Definition TV (HDTV) is also on the way for your subscribers. No doubt these technological innovations, especially HDTV, have huge sunk costs. Would you agree that the unexpected launch and success of Freeview has acted as a ‘push factor’ in Sky’s development of these innovations in order for you to have a technological competitive advantage over the inferior Freeview?
Shaun McCabe, Trinity College Dublin
JM: I’m really excited about HD. We have working HD broadcasts that are in test now, and they’re amazing. It’s our most exciting new product since the launch of Sky+, and we are confident that HD will set a new benchmark for quality in a similar way as Sky+ has done. Innovations like these do cost money. We’ve always been clear that this sort of pacesetting is exactly what we want to invest in.
I don’t agree that Freeview is what has pushed us to innovate. We’re proud of our record from the launch of Sky in 1989 through to the launch of digital in 1998, Sky+in 2001 and now HD. We have added more than 1.7m customers (net) since Freeview came on the scene.
While Freeview boxes are certainly selling, let’s be clear about what Freeview is and what it isn’t. In essence, it’s a slightly expanded version of the old, free-to-air TV that’s existed for ages. About 90 per cent of viewing in Freeview homes is still to the main terrestrial broadcasters, just split over a few more spin-off channels. No wonder they’re such strong supporters: Charles Allen of ITV said he’d rather ITV1 was one out of 40 channels than one out of 400. While hindering customer choice may suit traditional terrestrial broadcasters, Freeview isn’t likely to satisfy customers’ growing desire for choice and new services. In addition to limited choice of channels, Freeview lacks a user-friendly EPG or PVR, has outdated technology with limited capacity for interactivity and HD and no customer or technical support. Over time, with expectations changing so fast, we don’t think that a service with these limitations is going to satisfy a majority of households.
Would you like to move to New York at some point? Would you like to work at News Corp one day?
Asli Arbel, Istanbul, Turkey
JM: For some strange reason, this is a question that comes up a lot. Like any CEO, I serve at the discretion of the Board, but I’ve certainly got no plans to go anywhere. As I told investors at Sky’s results in August, it appears you’re stuck with me.
The FT would like to thank everyone who emailed questions to James Murdoch. There were many insightful and stimulating queries. Due to overwhelming interest, it has only been possible at this time for Mr Murdoch to answer a representative sample of questions. Please be assured that all the submissions were considered and helped inform the choice of questions that appear above.
Special thanks to the following for contributions:
Sean Petersen, MBA Candidate Class of 2006, Wharton Business School Ian Courtney, Chief Executive Officer, TM Communications and Media Robert Norton, Producer, Colorcalm, Hollywood, California Jean-Paul Edwards, Head of Media Futures, Manning Gottlieb OMD Philip Guest, Exane, BNP Paribas Sapna Bhatia, Founding Partner, Distinct News, India Robert Samuel, New York Suresh Mistry, Director, SDS Limited Marin Muyser, Managing Director, Travel Intelligence, London Alfonso Esteban, Madrid Luke Howard Taylor, London Colin Keatinge Elliot Black, MBA student, Cass City Business School Ian Stinson Staale Gjoes Gary Baker Dennis Wong, Westport, Connecticut Ibrahim Rahman, CEO, GEO TV Leigh Norton Angelo Evangelou Nick Hadjinikos Glen Frost, Director, Frocommaustralia Ben McOwen Wilson, Partner, Spectrum Strategy Consultants. Konstantin, Paris Robert Willsdon Mohammad C. Soubra, The Netherlands Bas van Bokhorst, Hilversum, The Netherlands Jan Goonetilleke Henry Seltzer, New York, NY Leslie Lipscomb, Brooklyn, NY Catherine Dombroski Ron Grover James Boyle, Geneva, Switzerland Gordon Lott Olivia Sterns, University of Pennsylvania, Class of ‘06 Ian Sanders, Managing Director, OHM London Staale Gjoes, My Sofa Delwyn Kayes, London Kenneth W.P. Hoffman, CFA M2 Capital Management, New York John Clarke, Wirral, Merseyside Marius Ballesty Jay Patel, Norcross, GA Badri Sanjeevi, London Patrick Ng, Houston, Texas Martin Burnett Derek Wildman Florian.Lottmann Susan Thompson, Ulster Lee Lindsay Adam Radcliffe Andrew Rodaway, Director of Marketing and Communications, Intec Telecom Nick Blythe, Director, Corporate Public Relations, Propaganda Asli Arbel, Istanbul, Turkey Adrian Barnard, MD Modern Communications Ltd Thomas Pochari Keith Baker, Waalre R. Adam Smith, Managing Partner, Circle Peak Capital, New York Tom Sutcliffe Nick Ashton Rhys Morgan Patrick Hickey Sandor Beres Philip L Letts Owen Rigby, Waterlooville, Hant Carolyn Khoo, London
Ian Courtney, Chief Executive Officer, TM Communications and Media
Robert Norton, Producer, Colorcalm, Hollywood, California
Jean-Paul Edwards, Head of Media Futures, Manning Gottlieb OMD
Philip Guest, Exane, BNP Paribas
Sapna Bhatia, Founding Partner, Distinct News, India
Robert Samuel, New York
Suresh Mistry, Director, SDS Limited
Marin Muyser, Managing Director, Travel Intelligence, London
Alfonso Esteban, Madrid
Luke Howard Taylor, London
Elliot Black, MBA student, Cass City Business School
Dennis Wong, Westport, Connecticut
Ibrahim Rahman, CEO, GEO TV
Glen Frost, Director, Frocommaustralia
Ben McOwen Wilson, Partner, Spectrum Strategy Consultants.
Mohammad C. Soubra, The Netherlands
Bas van Bokhorst, Hilversum, The Netherlands
Henry Seltzer, New York, NY
Leslie Lipscomb, Brooklyn, NY
James Boyle, Geneva, Switzerland
Olivia Sterns, University of Pennsylvania, Class of ‘06
Ian Sanders, Managing Director, OHM London
Staale Gjoes, My Sofa
Delwyn Kayes, London
Kenneth W.P. Hoffman, CFA M2 Capital Management, New York
John Clarke, Wirral, Merseyside
Jay Patel, Norcross, GA
Badri Sanjeevi, London
Patrick Ng, Houston, Texas
Susan Thompson, Ulster
Andrew Rodaway, Director of Marketing and Communications, Intec Telecom
Nick Blythe, Director, Corporate Public Relations, Propaganda
Asli Arbel, Istanbul, Turkey
Adrian Barnard, MD Modern Communications Ltd
Keith Baker, Waalre
R. Adam Smith, Managing Partner, Circle Peak Capital, New York
Philip L Letts
Owen Rigby, Waterlooville, Hant
Carolyn Khoo, London