Comcast's Sky Has Become "More Choiceful" About Content Deals, CEO Says

Sky CEO Jeremy Darroch - H 2018
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Jeremy Darroch says in a recent deal for Disney+, the firm took "a pretty high fixed cost base focused either on Sky Cinema or a declining Disney Channels portfolio" and "turned that into an a la carte app."

Comcast-owned European pay TV giant Sky is looking to reduce its programming costs by being "a lot more choiceful around where we spend our money and where we don't" in discussions with content companies, CEO Jeremy Darroch said on Wednesday.

Speaking during the virtual Bank of America Securities 2020 Media, Communications & Entertainment Conference, he said the increased capabilities of showcasing content in various ways on the premium Sky Q service was a key driver here. Citing the company's recent deal with Walt Disney for the Disney+ streaming service as an example, he explained: "We essentially took what was in the past a pretty high fixed cost base focused either on Sky Cinema or a declining Disney Channels portfolio, and we have turned that into an a la carte app," which has "released a lot of cost in our base that we can deploy elsewhere."

Discussing the impact of the novel coronavirus pandemic, he said, "we are a very resilient business," he said, adding his experience of 15 years-plus at the company has taught him that and often leaves him less worried than outside observers in the case of challenges.

Amid the virus crisis, Sky decided to "really focus on retention" of its customers, which led to Sky U.K. to retain 99 percent of its subscriber homes via such measures as allowing sports subscribers to pause their subscriptions when the pandemic canceled sports events. "The goal now is to ... exit 2020 in good shape" after the pandemic, adding it was "on track" to do well.

Asked how the company plans to grow its earnings before interest, taxes, depreciation and amortization (EBITDA), Darroch said improvements in Sky's sports, advertising and pub/hotels business are among the drivers, along with a centralization of its business and development operations in the U.K., reducing costs and leaving other markets, such as Italy and Germany, to focus on local issues.

Original programming remains a key focus for Sky, Darroch also said, calling it "a great opportunity for differentiated content" in between global and U.S. programming and local channels and fare. "Sky Studios is a great way for us to create more of our content."

Sky also sees itself as an "excellent partner" for content companies given its access to millions of homes. He said in negotiations about channel and content deals with the likes of Discovery and Sony the company can make choices on "what’s right for us" and can nowadays offer them "a variety of ways to work with us," including carriage of channels as part of the Sky bundle or a la carte, offering streamers or other programming as a straight service passed through to Syy consumers and the like. Darroch concluded that this was a "really good option" for partners and the company itself.

Calling the U.K. "the model" for the business in international markets, Darroch said the firm is in around 5 million homes in Italy, but only in TV for now. Sky has a "very, very powerful brand" in the country, and the company is launching broadband services to take advantage of that and develop "another big leg of growth." The CEO said the broadband launch in the U.K. had also been an "accelerator" for the business.

But in Germany, Darroch admitted, the Sky brand is "too small" today, meaning "we need to resonate much more" to open up growth in the future. Part of the strategy in Germany is moving away from sports a bit where Sky has been "over-invested," the CEO said, adding that the firm's most recent rights deal for German soccer league Bundesliga didn't pay off as well as hoped.

"Sky and Comcast are very similar," Darroch also told the virtual conference, adding that this is why the companies "integrated well" and why Comcast is a great home for Sky. Shared procurement helps reduce costs, he mentioned as one of the benefits of being part of a bigger company, but added that the management teams are now focusing more on joint product, content and people development initiatives. For example, Sky added Comcast's voice control feature into its premium Sky Q service, while NBCUniversal used Sky technology for the launch of streaming service Peacock.

Since Comcast beat out the Walt Disney Co. in a bidding war for Sky in late 2018 to strike a $40 billion deal for the company, Wall Street analysts have been wondering if the acquisition can really pay off, with skepticism also being a prevailing investor sentiment.

But Comcast has said it will increase investments in the rollout of pay TV features, broadband services and more original content.

"Sky has been a great addition to Comcast and positions us to better compete in a world where global scale matters," Comcast chairman and CEO Brian Roberts said earlier this year. He highloghted that the U.S. and Sky’s biggest markets of the U.K., Germany and Italy represent 50 percent of the world's broadband and video revenues. "That's pretty extraordinary," he said.

Sky and NBCUniversal's collaboration on advanced advertising, executive moves from Sky to other parts of the company and vice versa, and the recently launched streamer Peacock, which runs on Sky technology, are among the examples for how the different parts of the company can work together. Plus, the planned Sky Studios Elstree near London is backed by Sky, NBCU and Comcast and will, for example, also provide U.K. studio space for NBCU productions.

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