The Sky Effect

Effetto Sky – The Sky Effect The impact of the satellite platform on

Italy’s television system

Institute for Media Economics

Fondazione Rosselli

Bruxelles May 29, 2013

Flavia Barca

[email protected]

@flaviabarca

mailto:[email protected]

The study entitled “Effetto Sky” – The Sky Effect was born from the collaboration of the Institute for

Media Economics with Sky Italia

The objective was to track the main movement factors of the Italian television market

The impact that Sky had on the Italian Tv market was then identified as a way of illustrating the

main characteristics and the development of the Italian television market

Objective of the study

The analysis in particular was born from a double urgency:

1. The cultural and creative industries, in a rapidly changing digital environment, are crucial acceleration elements of national and international economy and are more and more crucial for European growth

2. The competitiveness of a country is also defined by the ability to attract foreign investments. Sky represents an example of success, in a context characterized by a poorness of foreign investments in Italy

Prerequisites and spurs for the analysis

“The Sky Effect” research has been segmented in five areas:

The perimeter of the study

TV viewership market and consumer

fragmentation

Technological development of the

TV system

Content, languages and formats of TV

products

The economic resources of the TV

system

TV supply-chain/ national economy Sky’s impact on:

Of these, only 3 will be examined here today: viewership, economic resources, impact on the economy

46 Sky Italia channels

28 pay-per-view channels

155 pay channels

18 channels by Fox

International Channels

91 third party

channels

Perfoming arts

Satellite Platform

1 DTT FTA channel (Sky Italia’s Cielo)

Preliminary remark: Sky’s offer in Italy

The economic resources of the TV system

The Sky Effect – Agenda

The impact of investments on the economy

The viewership market

Direzioni di sviluppo del mercato Tv The evolution of TV ratings

Over the 10 years of Sky presence in the Italian market , viewers’ consumption habits have radically changed in

the country:

In 2003, 19 millions, 83% of Italian households, still received only analogue-terrestrial television; in

2013 99% of tv households are digital.

According to data provided by the Italian media sector Authority, in late 2011, the pay-TV was present in 37% of

the total TV households and 39% of the only-digital homes. The digital satellite platform is the first pay-TV

platform in Italy, reaching in 2011 approximately 53% of the families using pay-TV.

Direzioni di sviluppo del mercato Tv The evolution of TV ratings

Digital switch-over, in Italy, has gone hand in hand, between 2003 and 2010, with a fragmentation of the offer

and a consumption-customizing process: different clusters of viewers turned to different thematic and targeted

networks.

In 2003, Rai and Mediaset were sharing out 89% of the TV audience; in 2011, the audience share of the two

broadcasters dropped to 76% and is continuing to decline.

Between 2003 and 2011, Rai and Mediaset generalist networks lost 22 share points on the whole, to the benefit of satellite pay offers first and then of DTT ones.

Share variations, 2011 v. 2008 (%)

Sorce: IEM on Auditel data

Direzioni di sviluppo del mercato Tv Sky and the market of TV ratings

Inside the pay-TV market Sky and Mediaset Premium [service launched in 2005 by Mediaset] share out steadily for more than 90% of the audience.

Since 2008, the two platforms have engaged in a fierce competition to win customers. But it is clear that it was Sky to draw the lines of the business model on which it is played (and continues to play) the challenge

1,62

2,47 2,85

3,28 2,9

2

2,3

2,83

3,4 3,83

4,24 4,6

4,8 4,8 5 4,86

0

1

2

3

4

5

6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mediaset Premium Sky

Direzioni di sviluppo del mercato Tv Sky and the market of TV ratings

This radical change in viewers’ consumption habits is mainly due to the radical change that occurred in the TV offer in Italy in the last ten years.

Without discussing the chicken and egg problem if innovation (offer) drives consumer habits or consumer habits (demand) drives innovation, it is quite evident how Sky Italia had a very important role in driving a quite conservative audience, used to a very traditional and linear way of consuming audiovisual products, to a more aware and engaging multitude of users, ready for the new digital and liquid world.

Direzioni di sviluppo del mercato Tv IE

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Distribution of the TV system resources, 2003-2010 (%)

Sky and the resources of pay-TV

26.8 23.1 19.9 18.7 18.8 18.5 19.2 19.0

63.2

58.0 58.4

55.4 53.5 51.7 47.0 47.9

10.0 18,.9 21.7 25.9 27.7 29.8 33.8 33.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010

Licence fee Advertising Pay-tv

From 2003 to 2010, the Italian TV market went through an expansion phase:

In the period 2003-2010, the revenues from subscriptions to pay offers (and PPV services) increased fivefold, representing the main driver of market consolidation.

The television market has undergone in 2011 the blows of the economic crisis and the fall in advertising revenues. Pay-TV revenues, however, continued to increase also in that year of crisis, coming to represent 34.7% of total resources.

Direzioni di sviluppo del mercato Tv

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1.500

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2.500

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2003 2004 2005 2006 2007 2008 2009 2010

Rai Mediaset Sky Italia

Revenues of the main Italian TV groups, 2003-2010 (€m)

Sky and the economic development of the TV system

In 2004, Sky Italia had 1.2 billion Euro in revenues, half those of Rai and Mediaset.

In 2010, with 2.7 billion Euro in revenues, Sky equaled the results of the two main Italian broadcasters.

6378

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876

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0

1000

2000

3000

4000

5000

6000

7000

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Tv in Italy 2004 Market growth (no Sky)

Sky's growth Tv in Italy 2010

Variation of the TV market value, 2004-2010 (€m)

Sky’s revenues grew by 121% between 2004 and 2010; the rest of the market grew by 17%.


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Revenues of pay-TV operators , 2004-2010 (%)

Sky and the resources of pay-TV

The birth of Sky represented a double acceleration factor in the pay-TV segment:

unlike the existing satellite offers from which it was born, Sky managed to expand the market

and make it profitable;

as a pro-competitiveness result, many different pay-TV offers (DTT, IPTV) were born and

developed

97.85 95.35

91.04 91.11 88.80

85.84 83.74

2.37

4.06 5.33

7.51 10.95

13.06

2.15 1.93 4.44

3.08 3.16 2.72 2.21

0.35 0.45 .0,48 0.53 0.49 0.99

75%

80%

85%

90%

95%

100%

2004 2005 2006 2007 2008 2009 2010

Sky Mediaset Premium Telecom Operators Others

Direzioni di sviluppo del mercato Tv Sky and the resources of pay-TV

… As a result, new business models were adopted in Italy and new positioning into the tv market.

The technological evolution and the need to innovate business models to capture new users and new

revenue are pushing in the direction of creating a "single market".

SUBSCR.

ADV.

FEE

SINGLE MARKET

Direzioni di sviluppo del mercato Tv Preliminary remarks: the impact study

Sky not only had effects on the Italian television market: it can be estimated, in fact, that

some multiplier effects induced by the investments of Sky Italia are visible also at the macro

level, i.e. on the Italian economy in general and in different layers of the television value

chain impacted by Sky (film and TV production, distribution, broadcasting and satellite

telecommunications).


Source: IEM on operators, Agcom, Nielsen, Upa and other’s data

The impact of Sky on the economy

The Sky ecosystem: companies involved in the chain

The chain of Sky is heterogeneous and complex, because Sky is both a platform that aggregates content from third parties and a publisher of its own content

Servizi alla produzione Diritti Talent

Produzione contenuti

Edizione canali e servizi

Encryption e broadcasting Commercializzazione

all’ingrosso

Abbonati

Servizi tecnologici

Installazione e assistenza

Punti vendita

Investitori pubblicitari

Aggregazione canali e pacchetti

Produzione

Edizione

Distribuzione

Consumo

Canali altri editori

46 canali

di Sky Italia

Direct and indirect effects on economy:

€ 19.2 billion

155 canali pay

92 canali

di editori terzi

Sky investment in content and technology (2004-2011):

€9.2 billion

The impact of Sky on the economy

Direct and indirect effects on

the chain:

€ 11.7 billion

121,000 new employees in the whole economy

92 canali

di editori terzi

Sky Italia direct employment and relevant allied activities

The impact of Sky on employment

131,000 new employees in the supply chain sectors

Certainly the satellite platform has had a dramatic impact on the Italian television market.

The appearance of Sky in Italy has profoundly changed viewership habits, the relationship between supply and demand of TV products and services, the amount of resources, the ability of technology to "protect" the content from piracy (through the activation of safer decoder) and to ensure an on demand consumption, the channel branding, TV languages and formats. It also brought substantial foreign investment in the country, impacting positively on the television industry and the economy as a whole.

This is one of those cases in which change and innovation, which are usually the result of a composite set of factors are, instead, strongly driven by a single actor who becomes an instrument of accelerating processes.

Conclusions

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Institute for Media Economics

Fondazione Rosselli

Registered office: Corso Giulio Cesare 4 bis/B 10152 Torino tel. +39 011 2079083

Institute for Media Economics’ operational Headquarters: Palazzo Corsini, Via della Lungara 10, 00165 Roma tel. +39 06 6869502

[email protected] www.fondazionerosselli.it

FONDAZIONE ROSSELLI Istituto di Economia dei Media

The Sky Effect

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