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REPORT PREPARED FOR:
SKY TELEVISION NETWORK
BUSINESS MODEL
BY APURV TIJARE
POSTGRADUATE DIPLOMA IN BUSINESS
APMG 8119: DIGITAL ENTERPRISE
ASSOCIATE PROFESSOR DR. ROBERT DAVIS
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AUTHOR CONTACTS
NAME:
Mobile: 022 419 2286
Email: [email protected] Student ID: 1422147
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TABLE OF CONTENTS
REPORT PREPARED FOR: ................................................................................. 1
AUTHOR CONTACTS .......................................................................................... 2
TABLE OF CONTENTS ........................................................................................ 3
EXECUTIVE SUMMARY ...................................................................................... 4
INTRODUCTION .................................................................................................. 5
BUSINESS BACKGROUNG ................................................................................. 5
BUSINESS MODEL .............................................................................................. 8
CUSTOMER SEGMENTS .................................................................................... 9
CHANNELS .......................................................................................................... 9
CUSTOMER RELATIONSHIP .............................................................................. 9
KEY ACTIVITIES ................................................................................................ 10
KEY RESOURCES ............................................................................................. 10
KEY PARTNERS ................................................................................................ 10
REVENUE ANALYSIS CHART ........................................................................... 11
COST ANALYSIS CHART .................................................................................. 13
VALUE CREATION ANALYSIS .......................................................................... 18
SUMMARY ......................................................................................................... 20
REFERENCES ................................................................................................... 21
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EXECUTIVE SUMMARY
Sky TV exists in both online and offline world, I am going to study their business
model and analyse how it makes revenue, its cost analysis, how the company
makes value and delivers it to different customer segments .
Sky TV is mostly into broadcasting of television channels, as a result its product
is an intangible object. Even though Sky has its major activities in the offline
world it has recently entered into the online world with its service iSKY. It has
collaborated with some of the major telecommunication services that are ISP and
will provide a way for sky to deliver its TV content via internet to the customers
on their phone online. This service is available to the customers using 3g service
of the partnered service providers.
Sky TV has come up as one of the best television service provider in Auckland; it
has proved this by delivery of value and great quality of service. It has
contributed in the development of media industry in Auckland and entire New
Zealand. Considering the infrastructure it has the ability to reach most of the
homes in New Zealand with the latest technology.
We will have focus on the offline business model because iSKY is just a
subsidiary product of the main Sky TV service; it just has a different channel of
delivery.
I will cover the business model for sky TV, it will include how the sky earners its
revenue, what is the cost structure, what are the key resources and activities that
are carried out to deliver value to the customers and the channel through which
they are delivered. We will be studying the above points in depth.
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INTRODUCTION
This study on sky network television in the field of broadcasting in done to
demonstrate it business model. It focuses on the nine elements of the business
model namely customer segment, channel, value, customer relationship, key
resources, key activates, key partners and revenue creation.
This is basically based on the business model canvas which is a systematic
arrangement of all the nine elements and demonstrates how the each element
works to make the business work. It considers the companies cost and revenue
sources in the marketplace and how illustrates how Value is created.
The structure of the report starts from the details of the business and the
television industry in New Zealand, later we look at the overview of the Business
model follows by an in-depth study of the nine elements. At the end we will
summarise the report.
BUSINESS BACKGROUNG
Sky is one of the primary televisions broadcasting service in New Zealand. In
February 2006 sky entered the free to air television entertainment sector by
purchasing Prime Television New Zealand limited for nz$30 million. It provides
multichannel, pay-television and free to air television services in New Zealand. Its
digital satellite platform has approximately 100 channels including base package
having 58 channels of news, sports, family program, general entertainment, free
to air channels and radio stations, the premium channels include 6 movie and 5
sports, the rugby channel, games channels mind games, world TV, country 99tv,
arts channels and a weather channel. It also provides video on demand service
to MY SKY and MYSKY HDI customers, it ranges from movies, art,
entertainment, sports, documentaries etc., and it is on a pay per view basis.
The company also does business by sales of advertising time of 26 of its
channels. The company is involved in other sectors like online DVD rental and
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publication of 2 monthly subscription magazines SKYWATCH and SKYSPORTS
magazine. SKYWATCH comprises program guide and SKYSPORTS has sports
content. Further the company provides a MYSKY a digital set top box with hard
disk and recorder that gives the user the ability to record live TV.
Distribution of local and international programme content to its subscriber base
via digital satellite network is the principle business. In June 2013 sky was the
largest pay television platform in New Zealand with over 855.9 thousand
customers. It is listed on the NZX and ASX and had a market capitalisation of
nz$2 billion based on the share price of nz$5.30 on 30th June 2012. Sky primary
revenue is derived from the monthly subscriptions approx. 88%, installation fees
and other revenue like advertising and selling program rights.
INDUSTRY OVERVIEW
New Zealand reached the television age quite late compared to others, Britain
with its BBC started in 1936 and soon was followed by USA. Australia had is first
broadcast in 1956 (ThinkTV, 2013)
The New Zealand government television committee gave green signal in 1959 to
this new medium after studying it for 10 years. On 1st June 1960 7.30pm the first
official transmission began. The first transmission was of just 3 hours and was
received only in Auckland. A year later Christchurch and wellington started
getting transmission and the remaining places in New Zealand followed in
successive years. (ThinkTV, 2013)
TVNZ came into existence in 1980 with the merger of tv1 and tv2. The first
privately owned channel came in 1989 and in 1990 Sky network television
became the first pay network. This was the era of furious competition and rise of
local content in televisions. Further the broadcasting act permitted over sea
investor to have ownerships because of which two US firms Time Warner and
TCI took control of sky TV. (Wikipedia, 2012)
The 21st century saw a radical change in the broadcasting industry; sky kept
adding several new channels and was reaching its subscribers via satellite. The
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free to air digital channels provided new opportunities to reach a wide range of
audience. (Wikipedia, 2012)
In June 2013 sky had captured approximately 49.4% of the pay television
residential penetration. It had a market share of approximately 29.8%. Under the
agreement sky digital service has the entire major free to air channels available
on its satellite digital service. Sky also does reselling and retransmission for
telecom and Vodafone to it 3g customers (ThinkTV, 2013).
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BUSINESS MODEL
A business model illustrates how a business generates, delivers and creates value; it is a part of business strategy. A business model contains a large number of elements that represent the core aspects of the business. Osterwalder & Pigneur, (2013) defines business models as a blueprint that describes how organisation does business. Slywotzky, (1996 ) describes business model as the way company selects customer, defines offerings, and define tasks which it will do and those it will outsource, manage resources, create utility for customers, and capture profits and market. The business model that we have used is based on the (Osterwalder & Pigneur, 2013) business modal canvas. It is basically built on four key factors , Infrastructure - key activities key resources, partner network. Offering - value proposition. Customers - customer segments, customer relationship, channels. Finances - cost structure, revenue streams. Below is a systematic business model canvas diagram made for sky TV
KEY PARTNERS
Vodafone,
Slingshot,
Other mobile
Operators,
Fatso
KEY ACTIVITIES
Broadcasting,
Advertisements,
Online rentals
iSKY online TV
VALUE PROPOSITIONS
Offers, value for
money, the
packages are built
and priced to
deliver the
maximum value
CUSTOMER RELATIONSHIP
Long term relations
with customers due
to content
CUSTOMER SEGMENTS
Mass market-
family homes
Business- motels,
hotels, small or
large business,
KEY
RESOURCES
Network,
employees,
content ,
distributers,
programs
CHANNELS
Satellite, network,
online
COST STRUCTURE
Programming, subscriber management,
broadcasting and infrastructure, sales and
marketing, advertising, other administrative and
depreciation
REVENUE STREAMS
Subscription - Residential / Commercial, Advertising,
Installation, and other services
Source: (Business Model Foundry GmbH, 2013)
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CUSTOMER SEGMENTS
Sky’s normal subscription aims at mass market, mostly families and people living
in New Zealand. Every person owing a TV is in the customer segment of Sky, as
a result they have to have a wide view towards the planning of it resources.
Sky’s business subscriptions aimed towards retail stores, small to medium sized
pubs or clubs, motels, hotels and, small to large office buildings.
CHANNELS
Channels are the way by which the service is being delivered. Sky invests a lot in
creating the infrastructure required to transmit the channels from its studio to
every subscriber. The digital content transmitted to the subscribers via its digital
satellite can reach almost 100% of the New Zealand homes. As per a count done
by sky there are 1.3 million house olds that have TV dishes installed in their
houses which is almost 80% of the New Zealand’s homes (SkyTV, 2013).
Sky has leased seven transponder on the Optus D1 satellite which are
responsible for broadcasting all the sky transmissions in New Zealand.
There are various subscriptions that provide various services like standard
subscription and HD subscription both are delivered through same channels but
are processed in different technologies (SkyTV, 2013).
CUSTOMER RELATIONSHIP
Sky usually has a long-term customer relationship because of the nature of its
services. People are attracted to the content and form a habit of watching or
interacting with the service. As a result they are constantly engaged with the
service and tend to keep the same service month after month. The only reason to
shift to another service happed because of some problems that the customer
may face for the service or company.
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KEY ACTIVITIES
Sky’s key activities are television broadcasting service in New Zealand. It
broadcast over 100 channels on its digital satellite platform. Its modifies the
content so that it suits the need of the customers. Sky is also involved in selling
advertising time of its own channels (SkyTV, 2013; SkyTV, 2012).
KEY RESOURCES
Key resources are the important resources which are required to deliver value
and the service. It makes the customer relationships happen, the distribution
channels work and the entire company operate. Physical resources like studios,
satellite transponders, onsite broadcasting truck, assets etc. are all a part of
physical resources. Human resource is also very important because the people
are the representatives of the service; as a result the customer link the service to
the company person directly as result human resource and management is very
important. Customer service centre are the first place where the customer goes
when he has any problem or question, the people working in the studio are
responsible for the technical work done. They produced the final product that will
deliver value to the customer and see that the product is received by the
subscribers
KEY PARTNERS
Sky has mostly owned its own primary service. It has majority share in Fatso
which provides DVD rental service. iSKY is a new service which give the
subscriber the ability to watch TV online. For this sky has partnered with IPS like
Vodafone, Orcon, Woosh, Farmside, Xnet, Slingshot so that there can be a
seamless provision of service. The TV content can be directly streamed to the
user’s device. (SkyTV, 2012)
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REVENUE ANALYSIS CHART
Sky television network receives it primary revenue from monthly subscriptions.
The subscriptions packages are priced according to the channels offered in the
package. Apart from the revenue generated from the monthly subscription Sky
also generates revenue from other sources like advertising and DVD rental. It
sells advertising time on 26 of its channels. Advertising is becoming an important
source of revenue; the total advertising revenue for this year was 67.2 million.
Higher viewer ship has bought growth to the advertising revenue, also the other
reasons for growth in this revenue are number of channels and higher per minute
prices. (SkyTV, 2012; NZX, 2013)
Other revenues like online DVD rental were started after the acquisition of Fatso.
This sector is also having a small contribution to the revenue.
On 30 June 2012 sky earned a net profit of 122.8 million after tax, that was a 2.1%
increase on the past years net profit after tax of 120.3 million.
Earnings before interest, tax and depreciation increased by 4.4% to $336 million.
Results are summarised below:
Fig. in NZ millions 2012 2011 %Inc(dec)
For the years ended 30 June
Financial performance
Total revenue 843.1 796.9 5.8
Total operational expenses 507.1 475.2 6.7
EBITDA 336.0 321.7 4.4
Less
Depreciation 134.1 125.0 7.3
Net interest expense and financing charges 29.4 25.3 15.8
Unrealised losses/ gains and others 0.9 0.6 n/a0
Net profit before tax 171.6 172.0 0.2
Source: (SkyTV, 2012)
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The total revenue was $843.1 million which is an increase of 5.8%, below is a more detailed chart Fig. in NZ millions 2012 2011 %Inc/dec
For the years ended 30 June
Residential 688.6 648.4 6.2
Commercial 41.4 38.8 6.7
SKYWATCH 13.2 13.3 0.7
Total subscription revenue 743.2 700.5 6.1
Advertising 67.2 62.7 7.2
Installation, programme sales and other 32.7 33.7 3.0
Total other revenue 99.9 96.4 3.6
Total revenue 843.1 796.9 5.8
Source: (SkyTV, 2012) RESIDENTIAL SUBSCRIPTION REVENUE
It can be seen that there is an increase of 6.2% which amounts to $688.6 million
compared to the 2011 $648.4. This revenue is generated from the residential
subscriptions only. This is the biggest contributor to the income of sky. There is
also an increase of 2.1% in the ARPU (Average revenue per user). (SkyTV, 2013)
COMMERCIAL SUBSCRIPTION REVENUE
This is the revenue earned from giving sub subscription service to commercial
places like hotels, motels, bars, hospitals throughout New Zealand. There was an
increase in revenue of this sector by 6.7%, from 38.8 million to 41.4 million in
2012. There is a 5.3% of increase in subscription and increase in additional
services. (SkyTV, 2013; Yahoo, 2013)
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SKYWATCH
This the monthly subscription of the sky TV channel guide magazine sold for
$2.66 per month. There was a decrease of 0.7% in the revenue in 2012. The
revenue for the year 2012 was 13.2millin which was 0.1 million less than 2011s
13.3 million. This drop can be because of the decrease in the number of
subscribers 2011- 431,702 to 2012- 420,405. (SkyTV, 2012)
ADVERTISING REVENUE
The advertising revenue increased by 7.2% to 67.2 million in 2012. There was
an increase of 12.6 % in the revenue earned from pay television advertising from
39 million in 2011 to 43.9 million in 2012. This can be because of the additional
revenue generated during the rugby world cup. (SkyTV, 2012)
OTHER REVENUE A decrease of 3% can be seen in the other revenue, from
33.7 million to 32.7 million in 2012. (SkyTV, 2012)
COST ANALYSIS CHART
Fig. in NZ millions 2012 2012 2011 2011
% of revenue % of revenue %inc/dec
Programming 273.7 32.5 255.9 32.1 7.0
Subscriber management 64.6 7.7 65.9 8.3 2.0
Broadcasting and infrastructure 84.5 10.0 72.6 9.1 16.4
Sales and marketing 39.4 4.7 40.9 5.1 3.7
Advertising 19.9 2.3 19.4 2.4 2.6
Other administrative 25.0 3.0 20.5 2.6 22
Depreciation and amortisation 134.1 15.9 125.0 15.7 7.3
Total operation expenses 641.2 76.1 600.2 75.3 6.8
SOURCE: (SkyTV, 2012)
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PROGRAMMING COST These include both the cost of purchasing programming rights and also the
operating cost for the programs. The right cost also includes the cost for movie
rights, music rights, sports rights, channel rights. cost of operation include
satellite expanses, cost of production of live event telecasts, fibre linking costs,
in-house productions, taping, post production, editing, and adding other features
to programmes. (SkyTV, 2013; SkyTV, 2012)
Below is the split view of programme rights and programme operation in the year
2011 and 2012
Fig. in NZ millions 2012 2011 %inc/dec
Programme rights 216.1 209.0 3.4
Programme operations 57.6 46.9 22.8
Total 273.7 255.9 7.0
Source: (SkyTV, 2012)
SUBSCRIBER MANAGEMENT COST
This is cost of installing and servicing the equipment’s set in the subscribers
place, these also include the cost of customer service department, general
administration and indirect cost associated with the working of the company. The
management cost decreased in 2012 by 1.3 million to 46.6 million was due to the
1.2 million decreases in credit control costs. (SkyTV, 2012)
MARKETING AND SALES COST
This is the cost that is used for marketing the current sky product to current
subscribers and new customers. This includes subscriber acquisition cost by
advertising campaigns, sales commission, direct advertisement and telesales
agent, the cost of on air promotions for sky and prime. The cost of marketing for
PRIME cost of SKYWATCH magazine production. sales and marketing costs
went down even though IGLOO's contributed 2.2 million, by 3.7% to 39.4 million
in 2012 (SkyTV, 2012).
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ADVERTISING COST
This is the cost of operating the advertising department which is responsible for
the sales of both sky and prime channels and includes 20% of sales commission
that is paid to the advertising agents. There is an increase of 2.6% to 19.9 million,
this is because of the higher advertising revenue in 2012 (SkyTV, 2012)
BROADCASTING AND INFRASTRUCTURE COSTS
This is the cost for transmission and liking the sky and prime studio to other
television station in the country. Its includes the cost of infrastructure needed to
transmit the channel signal throughout New Zealand. It also includes the cost of
leasing the seven transponders on the Optus D1 satellite which provides HD
television broadcasting. There was an increase of 11.9 million mainly due to the
additional cost of transponder on the Optus D1 costing 7.4 million. An additional
3.7 million were due to the fluctuation in the exchange rate.
ADMINISTRATIVE COSTS
These are the overhead cost of corporate management. There is an increase of
22% from 20.5 million to 25 million. The increase is due to the extra head count
and costs relating to ILGOO.
DEPRECIATION AND AMORTISATION
These is the cost of depreciation on the products owned by sky, they can include
the subscriber equipment like Arial, set top box and even sky owned fixed assets
like television station and studio. There is an increase of 7.3% (9.1 million) this is
due to the depreciation of OSB trucks which amount to 7.4 million and the rest is
from the decoders.
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INTEREST AND FINANCING COSTS
Costs have increased because of the 56 million debts drawn out to pay dividend
on 25 cents per share. Because of this there is an increase of 15.8%. The
average cost to sky has increased from 5.6% in 2011 to 5.8% in 2012.
2012 2011
Bank loan 6.7% 6.4%
Bonds 4.5% 4.5%
Finance lease 6.9% 6.9%
Average 5.8% 5.6%
Source: (SkyTV, 2012)
TAX EXPENSES They were decreased by 2.9 million 5.5% to 48.8 million due to the decrease in
their profit tax rate from 30% to 28%.
CAPITAL EXPENDITURE Sky’s capital expenditure for the year 2011 and 2012
Fig in NZ millions 2012 2011
Subscriber equipment 57.4 44.6
Installation cost 48.9 50.9
Building 0.9 3.7
HD broadcasting truck 2. 7.5
Other 27.1 28.3
Capital expenditure 136.9 135.0
Acquisition of onsite assets - 34.7
total 136.9 169.7
Source : (SkyTV, 2012)
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There was an increase of 1.9 million in the capital expenditure in 2012 compared
to the 2011. The subscriber equipment cost was higher because of the purchase
of the 12.8 million equipment MY SKY decoders. Approximately 41000 decoders
were purchased in 2012.Other expenses amounted to 27.1 million including the
12.3 million technology and infrastructure addition for ILGOO.
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VALUE CREATION ANALYSIS
It is very important for sky to deliver excellent value to its customers. According
to the (SkyTV, 2012) subscriber has to make a evaluation of the value that sky
delivers and decide whether to continue to pay for the sky service.
It is committed towards proving a value for money package. When the subscriber
registers for the monthly package they continue to watch more and more sky
content and the value that they are getting rises up.
The monthly price of the packages is given below:
Monthly price , in NZ dollars 2012 2011 %inc/dec
Basic 46.12 45.00 2.5
Basic + Movies 66.82 65.70 1.8
Basic + Sports 72.46 70.29 3.1
Basic + Sports + Movies 93.16 90.99 2.4
Source: (SkyTV, 2012) The value can be measured by dividing the average revenue earned per month
per subscriber (ARUP) for that year by the average number of hours viewed per
month this gives us the average cost per month for sky subscription.
The churn is a very good indicator that shows if the subscribers are receiving the
real value of their money. If the churn continues to fall, it shows that there is high
value for money being delivered by sky to the subscribers.
The subscriber can chose the services that they want in the package and
therefore there is always a movement in the number of subscribers of different
services.
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The tables below show the penetration of value packages,
MYSKY Penetration 2012 2011
Basic + Sports + Movies 38% 42%
Basic + Sports 39% 35%
Basic + Movies 8% 9%
Other 15% 14%
DIGITAL Penetration 2012 2011
Basic + Sports + Movies 25% 28%
Basic + Sports 41% 39%
Basic + Movies 7% 8%
Other 27% 27%
Source: (SkyTV, 2012) There is a interesting way in which sky monitors its affordability, it prepares a Big Mac index for pay TV services. It actually calculates the number of big Mac hamburgers one can buy at the cost of the sky subscription. It has compared different countries and the rates. This also shows that there’s a maximum value of the product at a very affordable rate (SkyTV, 2004).
Source: (SkyTV, 2004)
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The main value proposition of sky is that there are very few family entertainment
options available at as little as 53 cents per hour. This gives the customer
affordable type of entertainment that can be enjoyed any time with its family or
alone. It also offers a wide range of genre like sports, movies, news etc. because
of this the customer gets all this entertainment needs fulfilled. (SkyTV, 2013)
SUMMARY
From the above data it can be seen that Sky has a very solid business model
and has been very successful at its core business activity. With its packages and
services sky is able to deliver a high value service to its customers. It needs to
see that the same story and value is delivered by the staff to the customers
(Magretta, 2002).
Major revenue of sky comes from the residential subscription. $688.6 million out
of $843.0 million are received from this subscription. The MYSKY decoder is a
killer application to co-create value for the customers. Its enable to company to
deliver an enhanced TV experience. The second biggest contributor is
advertising and the rest like SKYWATCH, commercial subscription and other
revenues are also contribution to the revenue. (SkyTV, 2012; SkyTV, 2013)
Sky programming cost involve in purchasing the programming rights and also the
cost of operation of those programs. There are other costs like subscriber
management, broadcasting infrastructure, sales and marketing, and other.
These totals to $641.2 million which is 76.1% of the total revenue. (SkyTV, 2012;
SkyTV, 2013)
Sky has been constantly developing and introducing new services which have
been improving the value of the company Services .The company has high
interest in providing exceptional experience in sports content, as a result it has 6
sports channels. Services line DVD rentals, ILGOO are some of the sector of sky
that can really boost the business. If sky wants more customers to join their
network they need to have a stronger ecommerce oriented business model and
services like iSKY should be expanded and enhanced to a very higher level.
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ISKY online are yet to catch-up, there are 231,665 are registered to the iSKY and
watch over 127000 hours of online content. The company need to develop and
enhance this product as it has got a high potential.
REFERENCES
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Magretta, J. (2002). Why Business Models Matter. Harvard Business Review. NZX. (2013, september 5th). NZX Main Board (NZSX) Sky Network Television
Limited Ordinary Shares (SKT). Retrieved 2013, from www.nzx.com. Osterwalder, A., & Pigneur, Y. (2013). Business Model Generation: A Handbook
for Visionaries, Game Changers, and Challengers. John Wiley & Sons. SkyTV. (2004). Annual report. Sky network television limited. SkyTV. (2012). Annual Report. Sky network television limited. SkyTV. (2013). Annual results. Sky network television limited. SkyTV. (2013). Business Overview. Retrieved september 5th, 2013, from
Sky.co.nz: http://www.skytv.co.nz/Default.aspx?tabid=157 SkyTV. (2013). Interim Result. auckland: Sky television Network. Slywotzky, A. J. (1996 ). Value Migration. Harvard Business Press. ThinkTV. (2013). History of NZ TV. Retrieved 2013, from Thnik TV:
http://www.thinktv.co.nz/about-tv/the-business-of-tv/history-of-nz-tv/ Wikipedia. (2012). Television New Zealand. Retrieved from Wikipedia:
http://en.wikipedia.org/wiki/Television_New_Zealand Yahoo. (2013, september 6th). Sky Network Television Ltd. (SKT.NZ). Retrieved
from http://au.finance.yahoo.com/: http://au.finance.yahoo.com/q?s=SKT.NZ
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APPENDICES
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