Sky invests in hit factory so it can thrive alongside streamers

Times

21 hours ago

Sky's television and film studio in Elstree was not even fully built when the set builders and production crews moved in to start shooting Wicked in summer 2022.
Initially relying on back-up generators for power, Sky scrambled to ensure that the blockbuster tale set in the land of Oz before Dorothy arrived, was not faced with any more delays, as the studio grappled with the after-effects of the pandemic as well as soaring energy costs.
The trophy 28-acre site in the historic heartland of Britain's film and TV industries in Hertfordshire, is symbolic of the growing strategic importance of original content for Sky, as broadcasters and streaming platforms alike battle to prove their worth to viewers.
The site, which houses 12 sound stages — vast, soundproof hangars that can house realistic and intricate sets without fear of weather or noise interference — is the first production studio to be built in the UK by Comcast, the $133 billion American conglomerate that acquired Sky in 2018.
Film and TV is produced here not only for Comcast, whose huge empire spans Universal Pictures, the maker of Wicked, DreamWorks Animations and CNBC, but also external production houses: Paddington in Peru and Bridget Jones: Mad About the Boy were both filmed there.
The studio, which was given the green light in 2019 and finally completed in 2023 just before the Hollywood writers strike pushed the industry into fresh turmoil, was not built with the assumption that it was going to be a huge revenue opportunity, Cécile Frot-Coutaz, chief executive of Sky Studios and Sky's chief content officer, said.
It is more of a strategic asset for Comcast, allowing it to better plan its production slate, instead of competing for space available elsewhere, she said.
It is also evidence, however, of the growing importance for Sky, led by Dana Strong, its American chief executive, of building its own hit factory in an ever-crowded marketplace, where the explosion in streaming has changed viewing habits and the economics of the industry.
Originals such as The Day of the Jackal and The Tattooist of Auschwitz are 'critical' in the face of intensifying competition, Frot-Coutaz said, particularly if Sky is to set itself apart from its rivals. 'You want to be offering something that you've commissioned for a UK audience', she said. 'The originals are those shows that are going to be what's distinctive about your offering. Anybody can buy the American shows.'
Sky, created by Rupert Murdoch, the ultimate owner of The Times, as the UK's first satellite television service in 1989, has become a titan of the European media and entertainment market.
It has attempted to diversify its revenue streams through its faster-growing broadband and mobile businesses but television, which also includes sport and news, remains the centrepiece of its operations.
Under Strong, Sky has invested heavily in building its entertainment offering, particularly in sport, the engine of its pay-TV business. A record £5.2 billion Premier League deal that gives the broadcaster the rights to more matches than ever before, kicks in next month.
It has also been spending about £500 million on the drama, comedy and documentaries that populate its TV channels and streaming services such as Now TV, split across originals and acquiring content from its rivals.
The challenges are gathering, however, for Sky and its content business, which was built on unique access to sports, TV and films. Since its acquisition by Comcast, Sky no longer discloses its subscriber numbers. Frot-Coutaz insisted that the business had had 'a really good year overall'.
Several analysts have painted a less rosy picture, though, assuming customer numbers that are flat at best, or in decline.
In a research note last month the specialist research firm Enders Analysis pointed towards Sky's 'mature' pay-TV and telecoms businesses, which like its peers had declined because of the cost of living crisis and the 'abundance of video choices available'.
The rise of streamers such as Netflix, which is to invest $18 billion this year on content, and the cost of living crisis have pushed people to reevaluate their spending on telecoms and media products, Paolo Pescatore, of PP Foresight, said: 'They're probably saying, 'Why am I spending so much for channels I barely watch?' '
Along with customer numbers, there is also a question mark over how much Sky's brand actually resonates with younger audiences, Ian Whittaker, an independent media analyst, said.
'That's also where the new content strategy fits in because Sky can produce content targeted at younger audiences and which gets them to say, 'There's actually content on Sky that we like and we want to watch.' That both keeps Sky relevant to such audiences and potentially makes them more open to becoming subscribers.'
In Sky's most recent accounts filed at Companies House, revenue, which also included mobile and broadband, was flat and pre-tax losses rose from £563 million to £773 million, reflecting a writedown in loans to its Italian and German businesses, the latter of which was sold last month. It also wrote down the value of SkyShowtime, a streaming service jointly owned with Paramount, the owner of Channel 5, that went live in Europe in 2022.
In 2022, four years after Comcast bought Sky for $39 billion, it wrote down the company's value by $8.6 billion, which it blamed on a 'challenging economic environment' in Europe after the war in Ukraine.
Sky has been attempting to manoeuvre its business towards what Frot-Coutaz described as an 'aggregator' approach, instead of attempting to go toe-to-toe with the streamers. Netflix is now bundled into its packages and the company is open to more such deals, she said.
She emphasised the practical appeal of the technology platform that Sky has, allowing customers to access Sky content as well as streaming from public service broadcasters and the big American players across one interface. 'People don't buy Sky for a single piece of programming,' she said.
Sky's content may, though, need to shine brighter. From April next year a deal with Warner Bros Discovery that gives it the sole right to air HBO shows including hits such as Game of Thrones, Succession and The White Lotus on its own services in the UK will come to an end when Max, WBD's new streaming service, is available in the UK.
The ad-supported version of Max will then be bundled in for Sky customers at no extra cost but it will lose the element of exclusivity and it opens the door for WBD to negotiate deals with other providers.
Frot-Coutaz insisted that because 'the customer is not losing' access to HBO shows, there will be a 'continuity of experience' that counts in pinning down an audience. She also points towards eight out of the top ten best watched shows over the past 12 months across its services being Sky Originals.
At Elstree an expansion of the studios to the north is planned, which would more than double its size, adding an extra ten sound stages. It hopes to receive a planning decision before the end of the year.