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European pay TV giant Sky has in recent years increased its content spending on original series — from Fortitude and Penny Dreadful to the upcoming Guerilla and Riviera.
The company, in which 21st Century Fox owns a 39 percent stake and of which the entertainment giant has offered to take full control in a $14 billion-plus deal, says it is Europe’s leading investor in TV content.
This year, Sky plans to spend 6 billion euro ($7.5 billion) on content across the group, including 600 million euro ($750 million) on originals, with a record number of Sky originals onscreen and in production.
As managing director, content since January 2015, Gary Davey has overseen the ongoing push into originals and other programming decisions. He has responsibility for Sky’s entertainment, movies and news channels in the U.K. and Ireland and the entire entertainment offering of Sky Deutschland, where he has been executive vp programming since 2011, in Germany and Austria.
Ahead of MIPTV, he spoke to THR international business editor Georg Szalai about Sky’s evolving content strategy, the importance of originals across genres, competition from the BBC, ITV, Netflix and Amazon and what Fox’s offer to take full control of Sky means for his team.
Sky’s content investment and originals strategy have really been ramping up over the past few years. Where do you feel you stand now and what key milestones have you reached?
The journey in content started about four years ago before me. Sophie Turner Laing [now CEO of Endemol Shine Group] accelerated the progress. And even before her, all the way back to Elisabeth Murdoch, there was always an intention to invest in original content. The economics were always difficult and strange, because outside of the big producers ITV and BBC there really wasn’t a lot of activity, certainly in drama and comedy. It was very constrained to the factual category. Then Sophie started to nudge the company into high-end scripted production, particularly drama and comedy. So I was lucky and picked up the reins of a horse that was already out of the barn. And it’s been enormously satisfying to see it mature.
People in the business know how long the gestation period are in this field. We have projects that are in development for two, three years and sometimes longer. So to get to a critical mass of regular event television is a long journey and very expensive. 2017 is really the year when we feel like we are getting to that critical mass, in both volume and quality. This calendar year, here in the U.K. we will have 11 Sky original dramas and seven Sky original comedies.
How do you think about that compared to licensed Hollywood content?
All of that augments the output from our partners like HBO and Showtime. The net result is we have got a regular drumbeat of very high-quality comedy and drama. It’s coming together very well. We are actually producing content in eight genres: drama, comedy, factual, arts, film, children’s, news and virtual reality. So it’s a really broad church.
Do you expect Hollywood films to remain as important for Sky with your original series output expanding?
People still love movies, and I think they will for a very long time. I don’t see any radical change to our position in cinema. We got a different lineup in each of our territories. We have got all of the majors in the U.K., we don’t have Universal and Warner Bros. in Italy. We don’t have Paramount in Germany. But in Italy and Germany don’t forget that more than 50 percent of the titles they play come from independent distributors, so they are very different in the way they accumulate the content. But movies are a really fundamental part of the appetite in pay TV and always will be. If you look at HBO, its output is still 80 percent film, even though a lot of the reputation and halo around the brand comes from the scripted originals. Similarly, for us, Sky Cinema is a very important part of what we do, both linear and on demand.
Could you see Sky in Germany and Italy adding Hollywood studio deals or the U.K. not extending deals?
Maybe. As each studio comes up for renewal, we review each independently and we review our overall strategy. We come at it from the customer end, what is the customer appetite, what are the film types they are using and they want. We are acknowledging the diversity of taste. Most of us in TV grew up in the traditional network world where it’s one service for the whole community and you are trying to be all things to all people at 8 o’clock on Thursday. That’s getting harder, because not only do we have very diverse communities we are serving, but the tastes are polarizing.
I am constantly surprised by shows that I would have thought were a smash hit but that don’t work and then shows that we kind of overlooked break through. I think that is because we are not serving one audience. I want to deeply serve 100 different audiences, but I want each of them passionately engaged. What that means in terms of numbers is very hard to figure out, but that’s why we need a diverse range of content. The new world of multiple choice means people are exposed to things that they never were. For example, one of the interesting phenomena that have happened over the last few years is foreign-language drama, such as some of the stuff that has come out of Scandinavia in recent years. Who would have thought a few years ago that people would sit down and watch a Norwegian drama with subtitles!? But that’s just a by-product of choice and of being exposed to a broader and broader range of content types.
Why is original programming so important for a pay TV company like Sky?
We know that our most loyal customers are the customers who are engaged in multiple genres. So the broader the range of genres our customers become engaged with, the stickier they are. So it’s important that we have a piece in each of those areas. Our customers are able to vote with their check books in real time. The expectation levels in quality are going up every year. So when we commission, we need to make sure that we are meeting a quality expectation, but also surprise them with the story. This year we have a really nice broad mix of populist entertaining originals alongside the darker, more complex Sky Atlantic kind of storytelling. We are half-way through the second season of Fortitude, and that’s pretty challenging television. That’s not lean-back just happen to be passing by TV, but lean-forward, deeply engaging, challenging TV, which is perfect for Sky Atlantic.
So is original content more important for subscriber retention or acquisition?
I think it’s a bit of both. But in content, cutting through with a new program brand is really challenging and expensive. So, as a growth tool, it’s challenging. As a retention tool, it is in my view the most powerful weapon we have. That is why for us returning series are so important. Of our 11 dramas this year, I think five of them are returning. That is a sign of the maturity of our investment strategy. If we can get our customers engaged in a series and then keep bringing it back, we build a relationship between the TV show and the customer. A show would not return on our platform unless we believe that the customer base was engaged with it.
Before we commit to a second season, we do an enormous amount of homework to understand whether a meaningful proportion of the customer base was deeply engaged in the first season. If we can keep doing that at scale and at the appropriate quality level, that would be a really important part of our retention strategy.
Who do you see as your biggest competitor in terms of originals?
It’s a highly competitive space. The BBC and ITV have always been competitors for the best talent and ideas. We don’t have the same head-on collision competitively as in the U.S. where you have the crazy pilot season where 18 networks are all trying to hire the same writers, directors, let alone the acting talent. But we are competing with lots of people for talent and ideas. But the great thing about our world is there seems to be an infinite supply of brilliant ideas.
What has made this industry such an exciting place is we all have mountains of data looking backwards, but the customers have no idea what they are going to fall in love with next until they see it, and that’s the magic. And despite numerous attempts, nobody has ever been able to develop an algorithm to figure that out. The failure rate in our industry still hasn’t changed in 50 years. We don’t seem to get better at guesstimating.
Are there any elements you look for as a driver of success? How important are stars versus writers and other elements these days?
It is changing a lot. I think at the heart of it is the writing. The writers are the new megastars of our industry, quite rightly. Because it doesn’t matter who you cast on a shitty script, it isn’t going to work. On the other hand, if the script is good enough, the on-camera talent doesn’t have to be Brad Pitt. If it’s beautifully written and well directed, it will work. What we are looking for is the story and character journey. For us, the character journey is important. It used to be important to bring you back next week. It’s more important today, because it’s now about what’s going to sit there for another hour and watch another episode, and another episode.
How do you think about releasing shows in ways that allow binge-watching?
We are quite consistently now releasing a lot of our series for the whole season on day 1. It’s a really interesting test for a TV show to see at what episode number people go to bed. We are going through a really interesting analysis right now where we released the whole season 2. The data changes every day. How many people downloaded all 10 episodes and how many have watched all of them?
Did you start that because of Netflix and Amazon?
We started it because it is a natural thing to do as part of that customer relationship. You see that wooden stool with three legs over there? The legs say content, service and innovation. That is the journey this company has been on since its birth. We’re unique in the sense that those three things are so integrated that if you take one away, the stool falls over. The service piece is all about maximizing the convenience and the quality of the customer experience in any way we can think of. It was a quite natural thing to do.
There are some shows where we just can’t afford to do it. There are certain American shows where we couldn’t afford to hold the show back for a full-season release. One example is Billions. In the first season, we saved it up and took the bet that because it was new, the leakage across the Atlantic would be manageable. Season 2 there was no way we could save it up for 10 or 12 weeks. So we release every episode in sync with Showtime. Game of Thrones we air it at 2 a.m. absolutely in sync with HBO. That’s because customers expect it.
Do you see Netflix and Amazon as big competitors?
We compete ferociously on some levels. We compete for ideas, we compete for scripts and talents. What we are finding though is in our customer base, it appears to be additive, both Amazon and Netflix. It’s still early days, we obviously monitor it very carefully. And they don’t publish any performance data, so it puts them in a unique position. We track the performance of their shows in our households very carefully. We know what our customers are watching and not watching.
Anything you can share?
It’s data that we tend not to publish, because it’s competitive advantage. I’d rather not discuss it. I don’t think productive for me to get into a pissing contest with [Netflix chief content officer] with Ted Sarandos. I have got a lot of respect for Ted and some of the things they have done, so I’d rather not go there,
How do you measure the success of originals? I recall you mentioned at Sky’s investor day that you look at qualitative measures in addition to ratings.
We measure our performance in many different ways. One of the important ones is the level of engagement, which we measure by a tool called the passion score. As a pay TV platform, my most important key performance indicator is really simple: it’s called content worth paying for. We measure that constantly among our subscribers, we are measuring the perception of value. Obviously we look at the overnights, obviously we spend a lot of time thinking about ratings. Ratings matter, but the overnights for us today are an indicator, not the result, which we are measuring on seven days, 28 days and even longer-term.
There is also this perceived value concept. It’s probably the most important measurement we follow. We have a large panel of our subscribers and at the end of every series, whether it’s on Channel 5, BBC, Netflix or Amazon or on Sky, we ask for this passion score. A zero is, “I saw it and hated it,” a 10 is, “It’s the greatest TV show ever made.”
Any data you can share about key shows?
Game of Thrones is consistently a 9 point something. Anytime we get anywhere near an 8, we are hooting and hollering. Penny Dreadful was an 8, The Tunnel was an 8. And most of our dramas are in the 7 range. The Walking Dead is an 8. Those passion scores really matter a lot to us, because it means the customer is deeply engaged, and engagement is a core fundamental of pay TV. We are very vulnerable if our viewers are starting to treat us casually. If we become some kind of default thing that is casual and all what else is on, we are vulnerable, and we deserve to be. It’s a fantastically brutal democratic process. The customer doesn’t think he is getting value, he cancels. And if that happens on a big scale, this thing goes out of business really quickly.
Most talk about originals focuses on drama, but you mentioned comedy earlier as well…
We are really proud of the work we have done in comedy. And we are leading that field now. In passion score, the top two comedies in Britain are both Sky shows – Stella (about a mother juggling the demands of life, love and the next door neighbor’s donkey) and Mount Pleasant (about the day-to-day life of main character Lisa, her husband, her dad, as well as neighbors and colleagues), which are really warm, very human, light comedies.
How do you feel about your original dramas? And with your businesses in Germany and Italy also having started to produce shows, do you look for shows that work across all your markets?
The drama piece is operating really nicely on a pan-European basis now. The way the model works is really effective. Each of us are driven with a local agenda. The Sky U.K. team has to think about the U.K. customer. The Sky Germany team has to think about German and Austrian customers, and Italy does the same. The objective is to develop local projects in the local markets, work them up and at the moment we think they have international scale, then we pile in as a group. Great examples of that are The Young Pope and Gomorrah, two big shows out of Italy, which we supercharged as Sky Europe originals.
Remarkably, Germany has only started its original content journey, and it’s first big drama is Babylon Berlin, which started off as a relatively modest local project, but that is going to be a major priority for us in the fall in all three territories. And the German slate is just getting stronger and stronger. We have committed to the TV sequel to Wolfgang Petersen’s Das Boot, which I’m really excited about.
Do you look to adjust stories to make them work across markets?
Very really would we adjust the story. The project must stand on its own two feet. The Young Pope is slightly different. It started life in Italy, I was in Germany at the time and read the script and said wow, we have to invest in that, and then Paolo Sorrentino said let’s have a look at what the script looks like in English, and then the script ended up in front of Jude Law, so then the U.K. piled in and HBO and Canal Plus came on and suddenly it’s a big global co-production.
Do you basically try to be a pan-European producer?
No, we are servants of our customers, and they are local. We work together on whatever basis makes sense, but not in any way that would impact negatively the relationship with the customer. We have real-time data about everything our customers are watching and we know a lot about them. That relationship is really important. I keep reminding my people that for 26 odd years millions of families have given us permission to take money from their bank accounts. It’s a tremendous responsibility. We serve the trust and that relationship with the customer. We must never break that. So I wouldn’t call us pan-European at all. We think of ourselves as local guys who help one another at the appropriate level.
How key are your Hollywood partnerships (especially with HBO, Showtime) and how do you manage to cooperate and also compete?
We share our production slates. We very rarely trip over one another and know each other very well. We have been engaged in a partnership with HBO for years when we launched Sky Atlantic seven years ago. The vision was really clear. We thought there was a huge gap in the market for sophisticated storytelling at a very high-quality level. We were ready to start investing in that. It took us two, three years to ramp up our own productions, so the partnership with HBO fit perfectly. And then later we started working with Showtime with the evolution of their programming strategy under David Nevins. We have enormous respect for those guys. The choices they are making in production are incredibly brave and really cut through. So we like to think that Sky, HBO and Showtime kind of sit together as not only partners but examples of the very best in TV storytelling, and the relationship is very strong.
What is driving co-production decisions with them? Is it mostly a budget or talent thing?
First of all, you must be like-minded. We have done very few co-productions with U.S. networks. We have done several with HBO and Showtime. What’s driving is the budgets are getting bigger and bigger and the scale that we need to achieve is such that it’s pretty tough for any one of us to really sustain the entire slate on our own. It’s being driven by the consumer. Expectation levels are going up and up. Clearly, Showtime and HBO don’t always need our money. They’re well funded. But to maintain the right level of volume of projects that are big enough to cut through that’s when the partnership piece kicks in.
We are really happy with what we have done with them. We did Penny Dreadful for five seasons with Showtime. That was tremendously successful. It was very sad it had come to an end, but we got five very good seasons. So we share a common vision and can share the risk on budgets. It’s working very well. We have even done a couple of things with Amazon. [Britannia is a co-production with Amazon, and Sky Vision has sold Fortitude to Amazon.]
We have a very solid funding base given our core business. The secret for us to fund our projects ideally is to find a North American partner, which helps managing the financing risk. We don’t always do that. There are times when I say we haven’t got time to find a U.S. partner, I’ll carry the risk, let’s go for it. We have not blown budgets. So we don’t always require a North American partner, but it’s preferable.
Do you see the planned Fox deal helping Sky’s original programming strategy or changing your thinking?
I wouldn’t want to comment on the deal. But we have known the Fox guys intimately for a very long time. And in the production space, we stay in very close contact with parts of Fox, particularly FX, which is commissioning the kind of shows that we normally like. To date, we haven’t done a co-production with FX, but that’s just coincidence. Going forward, it would make sense to continue to find ways to work with Fox as a North American partner, but frankly we’d be doing that whether the deal was happening or not. I don’t see any really big change there.
Do you expect Brexit to have any impact on your content strategy and your thinking about it?
No, not really. It certainly hasn’t had any impact on our thinking so far. We are successful if we do a great job in Italy, a great job in Germany and Austria and a great job in the U.K. and Ireland. We’re not here to do a great job at the European Commission or in Brussels or anywhere else for that matter. We have got to serve our markets. And whether the U.K. is in Europe or out of Europe really probably won’t change any of that.
How do you think about acquisitions of production companies? Sky’s Sky Vision distribution unit has acquired stakes in several production firms…
I think we don’t have a big appetite for more acquisitions of production companies. We continue to look at that from an opportunistic point of view. We are very happy with the eight acquisitions we have made under the Sky Vision umbrella, and they are all doing really well. That represents a really interesting talent pool. Almost all of them are in the factual entertainment category, which is a category we are not investing heavily in as a commissioner. So there is very little M&A activity in the drama space for us. It’s given Sky Vision a real critical mass of content to sell internationally.
The original intent was to monetize our investments in original content in the U.K., and it is now turning out to be a very meaningful stand-alone business in its own right. Sky Vision will be at MIP with 670 hours of content to sell — over 100 hours of that are Sky originals, another couple of hundred of hours are from our eight investments and then some content from third parties. So we have critical mass, which gets us a seat at the global sales table, which helps us monetize our risk investment in original content.
You mentioned your original comedies earlier, but comedy has a reputation for being a harder sell abroad. Does comedy sell internationally?
There are very few comedies that have ever traveled well. So we don’t invest in comedy with a global distribution view. It’s very local. That’s why our U.K. comedies work. I don’t think our Italian and German acquisitions team have ever bought one of our comedies. They love our dramas. But comedy is such a peculiarly local proposition that it doesn’t really travel well. There are some massive exceptions like Modern Family and The Simpsons. The exceptions are enormously valuable, so I would love to be producing more of those.
Tell us about some of the new originals you’ll have coming up and at MIPTV…
We got Jamestown from Gareth Neame (Downton Abbey) who is a brilliant mind. The three main characters are just brilliant. It’s quite broad, which is why it is on Sky 1. If it was a more narrowly focused proposition, it would probably be on Sky Atlantic. It’s about three women who leave London on a ship that goes to the East Coast of America in the 1600s where 400 men have built this town. And they are there to become wives and populate North America. They are three very different women, and they are brilliant. At the hear of it, it’s a story about empowerment. These women rise above the difficulties, each in their own way. It’s a really optimistic view of the world and a brilliant romance. I think if we can land the romance piece, it will be a very big show. That’s on in May.
What about Guerrilla with Idris Elba, where Showtime is your partner?
It has a fantastic cast. Freida Pinto is just amazing and so is Babou Ceesay, who is the lead, and Idris is the second male. It’s a really challenging piece, but really important. It’s telling a true story of London in the 1970s where there was a Black Panthers movement, and the Metropolitan Police were so confused about how to manage this problem that they recruited thugs from the Rhodesian police force to sort them out. There is a romance underneath it and there are wonderful character journeys.
You will also showcase Riviera with Julia Stiles in Cannes, right?
Yes. Julia is absolutely brilliant. She plays the wife of a billionaire. The show starts with a very glamorous party on a yacht in Cannes harbor. There is a huge explosion, and the billionaire is theoretically dead. She, a quite recent bride, inherits this family that she knows nothing about and quickly discovers that it’s a crime syndicate dealing in stolen art and pretty nasty. And she is in this torment over what does she do. Does she fight it, does she call the police? And in the end she decides to join the dark side. And as Cameron Roach, one of our leading drama developers, said to me: By the time you get to episode 5, she turns into a fucked-up Alice in Wonderland. What’s really interesting is we very deliberately went after a really bold color palette. It’s really primary. It’s very sexy. It’s probably the sexiest thing we’ve done.
What else do you have coming?
We got [revenge thriller] Tin Star [with Tim Roth and Christina Hendricks]. Nobody says “fuck off” quite like Tim Roth. He is amazing. It’s brilliant. Britannia [set in 43 AD when Britannia was ruled by Druids and warrior queens and starring David Morrissey (The Walking Dead) and Kelly Reilly (True Detective)] is not ready yet. We’re still in postproduction [on the Amazon co-production]. We got Jez Butterworth (Spectre) who wrote that. That’s the biggest-budget thing we have done. We’ll likely be ready to pre-ell it by the time we get to MIPCOM. We also have Gomorrah season 3, Fortitude, and The Tunnel is coming back.
And how about Babylon Berlin, which Sky Deutschland is co-financing?
It’s gorgeous. It’s set in Berlin in 1929, very glamorous, very sexy with a fantastic crime story running underneath it. It’s produced and directed by Tom Tykwer. We are really proud of it.
Sky U.K. has previously said it will also start producing entertainment shows. Why is that and any news yet?
Yes, we are going into entertainment formats. We are already very heavily in that in Italy, not so here so far. When I was in Italy, I commissioned MasterChef and X-Factor about seven years ago, and they are both still on the air. They are also doing Got Talent and smaller local formats. Sky 1 in Italy is very big in entertainment. They do that stuff as well as anybody else in the world.
Germany has just started that journey. We launched MasterChef in Germany in November, and that’s landed really well. But we haven’t done big entertainment formats in the U.K. so far, but we have announced we are going into that category. We are reviewing projects now. So we will have three big components of our agenda here: big entertainment formats, big drama and much loved comedy.
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