Jeremy Darroch

This interview originally appeared in the MIPTV 2015 issue of World Screen.

Sky (formerly BSkyB) was formed in November 1990 from the merger of two competing satellite television services, Sky Television and British Satellite Broadcasting. Over the course of the following 25 years, not only has Sky established itself as the leading pay-TV company in the U.K. and Ireland, it acquired Sky Italia and took a majority stake in Sky Deutschland, becoming the premier pay service in Europe. Today, Sky serves some 20 million customers. Its success has been built on the seemingly simple proposition of always placing its subscribers’ needs first, and also by displaying a constant, unwavering commitment to quality and innovation.

Sky offers its content in a variety of ways, on a range of screens and devices: TV, online, tablets and phones. It not only offers programming, but also broadband and telephony services. Keeping in mind that not all customers can afford a monthly subscription, Sky launched NOW TV, an over-the-top streaming service that provides access to the best of Sky’s content.

The content selection is vast indeed. Sky programs four main entertainment channels—Sky 1, Sky Living, Sky Atlantic and Sky Arts—which showcase homegrown commissions and the best of U.S. programming. In addition, Sky Movies is Europe’s largest in-home movie service; Sky Sports offers seven channels of live and exclusive sports, news and analysis; and Sky News reaches more than 100 million homes on multiple platforms across 118 countries.

Jeremy Darroch joined Sky in 2004 as CFO and was appointed chief executive in 2007. He has overseen the expansion of Sky from a satellite television provider to a multi-product media company. The group’s other businesses include Sky Media, an advertising-sales house; Sky Business, a provider of TV and Wi-Fi to commercial businesses, including hotels and offices; and Sky Bet, which offers online betting and gaming services. Sky has also focused in the last few years on content distribution, by wholesaling its channels to third-party pay-TV platforms, and selling programs to the international market through Sky Vision.

For the year ended June 2014, Sky reported revenues of £7.6 billion ($11.7 billion), with operating profit of £1.3 billion ($2 billion). While there are still consumers in the U.K. who don’t subscribe to Sky—in a total market of 26 million households, about half have yet to take pay TV—the room for growth multiplies substantially with the addition of the Sky companies in Germany and Italy. Now the combined Skys are operating in markets with 100 million households, including some 60 million that don’t yet subscribe to a pay-TV service.

Darroch talks to World Screen about scouting out growth opportunities while remaining committed to what solidified Sky’s success from the very beginning: quality content, innovation and customer service.

WS: What has been the strategy for evolving the company from a satellite television provider to a multi-product media company?
DARROCH: Our focus has been very much on broadening out our business. We’ve done that for a couple of reasons. As we continue to expand, we want to open up new headroom for growth and it’s also about challenging ourselves to offer a service for everybody and find more ways to get Sky’s great content into even more people’s homes. We’ve seen a progressive broadening of our distribution away from the satellite—even though satellite works very well—to incorporate things like OTT and broadband networks, maintaining wholesale relationships with other companies, and distribution over mobile networks. Off the back of that, we’re deepening our relationships with customers to offer them more things: for example, upgrading to high definition; connecting their set-top boxes and offering on-demand services; and building a pay-as-you-go business, where people can either rent or buy DVDs direct from their set-top box. All of these things help us to serve the market more broadly and open up new revenue streams. That’s one of the reasons why we’ve continued to accelerate our growth in the U.K. from an already high base.

WS: How has the company invested in its customers in the U.K. in the last 12 to 18 months?
DARROCH: When I think of Sky, I think of us as sitting at the nexus of content, innovation and service. Our job as a brand is to bring those things together for our customers. We know that customers will respond to greater investment on screen and even better content. So we have been deepening our relationships with international partners—HBO would be a good example—but also commissioning more of our own content directly. Then as we think of innovating, how can we help our customers get access to Sky content on whatever device they want, whether it’s mobile or on demand, or whether it’s through the linear TV service. And then we never forget that Sky is a subscription service, so we want to make sure that we offer the very best customer service delivery in our marketplace. We invest right across each of those areas of content, innovation and service and in doing so we continue to extend our leadership position in the U.K. And we have a big appetite to keep investing.

WS: You have been offering services in other areas as well.
DARROCH: The heart of that has been our connected-box strategy. About two-thirds of our customers now have their set-top box connected to their broadband return pathway and that has allowed us to develop entire new revenue streams. An example would be a technology we’ve developed in-house called Sky AdSmart that allows us to tailor our advertising to a particular set of demographics. Second, we’ve launched a service called Sky Store, which is our rent-and-buy DVD service. Today you can rent a movie through Sky Store soon after it has come out in cinemas, or you can buy that movie and we will download it to your box and then send a hard copy in the post. So we see good opportunities to grow share in areas like advertising and the DVD transactional market that can be all additive to our business today.

A final area to talk about is a second brand that we’ve launched called NOW TV. It’s an over-the-top streaming service and is a really good way of getting Sky’s content to those customers who don’t choose to take a full subscription service today. They could be young people living in flats where it’s not easy to receive a satellite service; or perhaps they don’t want a full-year contract. We can use a brand like NOW TV to tailor what we do to them to better meet their needs.

WS: What was the strategy behind unifying Sky U.K., Sky Deutschland and Sky Italia?
DARROCH: We think we’ve built a very strong and successful global leader here in the U.K., which is performing well. We see the opportunity now to expand into new markets that could open up greater headroom for growth for the business. Today in the U.K. we operate in a market of about 26 million households and about 13 million or so of those have yet to take pay TV. In the combined Skys we operate in markets with 100 million households with something like 60 million households that don’t yet take a pay-TV service. So the basic headroom for growth for the business opened up by combining the Skys in Europe. The nice thing is that Sky in the U.K., Sky Deutschland and Sky Italia have got a lot in common: clearly, they have the same brand, we know the management teams well, they share the same basic ethos and what they do is very similar. We felt it was a good opportunity to open up our headroom for growth by combining very similar businesses that were very successful and very high quality with good growth opportunities ahead of them. We believed that together, we could be bigger than we could each be individually.

WS: Even though historically the pay-TV business took quite some time to take off in Germany and Italy is now being battered by a dismal economy, you still see growth opportunities because of the strength of Sky’s pay-TV proposition?
DARROCH: We do, yes. I think it will be slightly different in Germany and Italy. As you say, our German team has done a good job creating momentum in the Sky proposition, really starting to drive a clear differentiation between what viewers get from Sky versus some of the free-to-air providers. I think that is one of the reasons that business is growing well. Germany will be more of a growth market for a while.

Italy, you’re right, is slightly different. The economy is clearly quite tough in Italy but pay TV is a much bigger business there than it is in Germany today, so we figure there are more scale efficiencies we can bring between the U.K. business and Italy by sharing best practices and capabilities and also by getting Sky Italia to go on the path of the U.K. in broadening their distribution. For example, they just put in place an IPTV partnership with Telecom Italia, which we think is a good opportunity to grow their subscriber base. They’ve launched a service called Sky Online, which is very similar to NOW TV in the U.K. and which will enable them to get to parts of the market that they can’t target particularly well today. We think that over time there is no reason why Italy can’t grow as well. Clearly in the short term this could be more of an economic challenge, but we are in for the longer-term view of the potential of these businesses.

My experience across all the markets, not only the U.K., is that home entertainment is really important to people; it’s a core part of what we want out of life. So if you’ve got an appetite to invest, to improve, to do new things, customers will respond to that and you’ll be able to grow your business on the back of it.

WS: And I imagine you have best practices that you can share amongst the three countries?
DARROCH: Very much so. We are getting more ideas and more ways to share. Product technology would be a very big area. We’ve got a lot of similarities today but we can standardize technology and that will allow us to innovate more quickly across all markets and more consistently. There are good opportunities in content creation and in commissioning shows that will work across each of the three territories. There are lots of best practices that we can transfer in areas like customer management, cost efficiency, brand development, and people. So we can see lots of ways that bringing the businesses together enables us to leverage that capability across a broader set of territories.

WS: I know that sports rights are sold on a territory-by-territory basis, but do you see in the future the possibility of acquiring some rights for all territories?
DARROCH: It wasn’t foremost in our minds when we thought about the transaction. We will follow how the sports rights holders want to sell their content. I think the big sports will continue to be sold on a territory-by-territory basis, but we are going to be a good partner. So if somebody comes and says we want to have one conversation that covers each of the markets, we would be open to that.

WS: Finally because it’s the programming that drives the whole business, original productions have been very important to Sky in the U.K. and also in Germany and Italy.
DARROCH: Yes, very much so. We’ve invested more in terms of what we’ve produced ourselves and that trend will continue. Each year we’ve invested more on screen and each year we have grown. We are very clear on our pathway and very ambitious in terms of what we want to achieve.

WS: What strategies must Sky pursue in order to remain the market-leading pay-TV company in the markets in which it operates?
DARROCH: First and foremost, it’s critical that we don’t lose our mindset of embracing change and re-inventing ourselves, stepping into opportunities. That has always been at the heart of this business. We view a changing media landscape very positively because we see possibility and opportunity in it rather than just challenge. Alongside that, it’s important to remember that in most markets in Europe, certainly all the markets that we are in, there is very significant headroom for growth. Pay-TV penetration is still not at the levels that we see in the States or in many other markets around the world, so there is good opportunity. In addition, distribution networks are opening up with new ways to get to customers and barriers to entry are coming down. These are all positive for our business.

The second thing is to not lose sight of the fundamentals of the business: building out our content assets and our channel brands; being willing to continue to invest on screen, which is ultimately what customers value more than anything else; and continuing to lead the way in technology. We’ve got great content. We can use our powers of innovation to help you get the most from your subscription service and get access to that content across multiple devices or multiple pathways. Today a Sky customer will consume content in multiple ways—through the satellite, either linear or on demand, over broadband, over mobile, through a catch-up service—and we can super-serve customers by embracing that.

The third thing is to never forget that you win on the ground in each of those markets. We’ll win in Italy by being great in Italy. We’ll win in Germany by having a great German business, and likewise in the U.K. One of the cornerstones of Sky’s success is our understanding of what it takes to deliver a great proposition to customers. We’ve been very good at harvesting that learning and reapplying it across the value chain. That means thinking about what that means in terms of the content we want to buy or commission. Or thinking about how we get innovation right, not overly complicating things but making our products easy to use. And thinking about what is really important for customers from a service point of view. Having an appetite for change is key, alongside sustained investment in the core fundamentals and having deep consumer insight, which we can apply in deciding what we do and how we do it. These are the things that will keep us ahead of everybody else.

WS: What are you learning about how your customers want to watch movies and TV shows?
DARROCH: If you look at the last 12 months there has been an explosion in on-demand viewing. Customers are really starting to say, for certain types of content, that they really want to watch it in their own time, at their own leisure. So if you take a like channel Sky Atlantic, which carries a lot of HBO’s content and our own comedy and drama content, we see a lot of that consumed not through the linear schedule, but at a different time from when it’s first transmitted. Live sport is the opposite. It’s all about the live experience and customers want to watch it as it happens. They cut away from that and then lose interest quite quickly. I think that we’ll continue to see viewing behaviors change, but the growth of on-demand and catch-up services and the ability to access content away from home will be important trends.

WS: Do you foresee a moment in time when on-demand will overtake viewing of the linear channels?
DARROCH: I think for some channels that will happen faster than for others, but it is important to remember that viewing is still dominated by linear viewing if you look at it at a mass-market level. I think the on-demand viewing trend will continue and some of the niche channels will be at the forefront of that. Of course, individual customer segments will move faster than others. We still have a number of customers today who chose to consume Sky just through the DVR and they are very happy! For us it’s key to understand the broad trends, but then also to make sure that we can translate what they mean to individual segments of customers and serve those directly.

WS: How do you envision distributing content in the future?
DARROCH: I can see us continuing to broaden our distribution. We’ll always have the retail business in each of the markets that we compete in, but we will also continue to seek to broaden how we get to customers. We’ll do that by distributing our own content directly through our own channels over broadband and mobile networks but also as partners with others. Today we’ve got more relationships in place with cable operators or the big telcos across Europe than ever before because we know that will be the best way that we can serve the whole market.