Reviewing the latest set of Sky financials released last week, we can see the satellite pay-TV operator struggling valiantly with a presentational issue.
Quite understandably, given the fact that its core subscription business is nearing saturation-point, it has turned its business model in recent years from one where it seeks to maximise subscriber growth to one where it is trying to maximise the amount of money it can squeeze out of each subscribing household instead.
This process involves trying to persuade its relatively stagnant installed subscriber base to take more and more products. As chief executive Jeremy Darroch said, “we will continue to focus on overall product sales as the best means of delivering sustainable growth […].”
That strategy is working well, as the latest Q3 results, which show a 9% rise in profits, demonstrate. But it also means Sky needs to persuade the City to adopt “overall product sales” as the Key Performance Indicator (KPI) to watch and pay less attention to the plateauing of the conventional TV subscription-based one. And that in turn has entailed some judicious spinning, not for the first time.
Thus it was that in the previous quarter, Q2 (for the period ending 31 December 2012) some new lines appeared in its KPI Summary table, accompanied by some changes of terminology.
‘Now TV’ appears for the first time as a new product category and, where before there was simply a single line for Total Products, the Q2 table has re-labelled this ‘Total paid-for subscription products’ and added two new categories – ‘Connected HD boxes’ and ‘Sky Go unique users’ – below it. Add all that together and you get a new, larger, Total Products figure.
Now TV is, of course, legitimately described as a new product: it’s a different way of obtaining access to Sky’s pay-TV content. Arguably, though, ‘Connected HD boxes’ and ‘Sky Go unique users’ are not.
For a start, connected HD boxes are a subset of HD boxes, so if you add them in as a new product you are counting the same product twice. Leaving aside the fact that a ‘user’ is not a ‘product’, the same applies to the category ‘Sky Go unique users’. Unlike Now TV subs, by definition they are already Sky TV subscribers, and are already accounted for in the ‘TV’ line above.
This process of double-counting has had a significant impact: in Q2, the new accounting wheeze had the effect of boosting Sky’s Total Products KPI from 29.5m to 34.3m.
However, roll forward to the latest set of results, for Q3, and it’s clear this working of the figures is still in-progress. In the Q3 KPI Summary table Now TV has now been removed as a separate product and bundled in with the ‘TV’ line – possibly because, as rumour has it, the ‘TV’ category would otherwise have flat-lined on its own, if not fallen, diverting the City’s attention away from product sales and back to subscriptions.
Meanwhile, Connected HD boxes and Sky Go users are now described as ‘New connected TV services’, and the Total Products line has metamorphosed into an apple-and-pears category labelled ‘Total products and services’.
This re-defined category provided 5.5m extra double-counted ‘units’ to Sky’s 30.2m ‘paid-for subscription products’ in Q3, bringing the total to 35.8m.
I would argue that these contortions show Sky to be on the horns of a dilemma. On the one hand, it wants the financial community to focus on ARPU (aka product sales). On the other, it wants to be seen to be embracing the connected, multiscreen TV future, in order to reduce churn (which rose in Q3) and avoid the spectre of cord-cutting. Unfortunately, making available the ‘products’ (connectable boxes) or ‘services’ (Sky Go) necessary to achieve that aim is not (pace Sky Go Extra) a monetizable activity: ‘New connected TV services’ is a category that might as well be re-labelled ‘Non paid-for products and services’.
But since that would undermine the ‘increasing ARPU’ message, the spin-doctors have been trying to conflate what is essentially a non-ARPU related metric with an ARPU-related one.
It will be interesting to see whether these new definitions survive into the Q4 KPI table.
