Jeremy Darroch

For more than 20 years, BSkyB has been offering its customers choice and a plethora of new services, starting with a bouquet of channels and an electronic programming guide, moving on to the famous red button that provided interactivity, and following up with the personal video recorder, broadband, mobile and, now, 3-D TV. Chief executive and executive director Jeremy Darroch talks about keeping Sky’s nearly 10 million subscribers satisfied while serving the community at large.

 

WS: Sky is known for its penchant for innovation and for always placing its customers first. What have you learned about what your subscribers expect from Sky?

DARROCH: We are and have always been relentless about putting customers at the heart of what we do. Because of that we’ve got a real focus on what our customers want, ensuring we invest where our customers will get most value. First of all, we want to offer the very best content, whether we’re talking sports, movies, new drama, arts or documentaries. Secondly, we want to innovate to enable our customers to really get value out of their subscription package and to let them watch what they want, whenever they want to watch. Thirdly, we look to provide great service, whether that’s from our contact centers to our professional installers. And finally, we want to offer great-value prices and to help our customers save money through our home communication services. These are all ways that we can really add value to our service.

 

WS: What have you learned about your customers’ behavior during the economic downturn? Is pay TV one of the things they have kept in their budgets?

DARROCH: About a year ago, many people were wondering how we would perform during a recession, and some were asking whether consumers would continue to pay for entertainment when belts tightened. Since then we’ve seen a continuation of some key trends in our industry. Firstly, people across all demographics are watching more TV today than at any point in the last decade—this is a very broad trend that we are seeing. Secondly, people increasingly value quality entertainment, and a growing number of people are willing to pay for better home entertainment. Just as consumers are very comfortable with paying for a great concert, a play or a match, increasingly they are very comfortable with the idea of paying for better entertainment at home as well.

 

Aside from those two factors, the recession has really created a flight to both quality and value. At Sky, the strength of our subscription model has enabled us to position ourselves as the provider of the best home-entertainment service by continuing to invest in better on-screen content and technology like HD that really lets you get the best for your viewing experience. Equally, as we have diversified our business into home broadband and home talk, millions of customers have switched to Sky, saving money in the process.

 

WS: As the role of public-service broadcasting is being debated in the U.K. and throughout Europe, in what ways and with which types of programming is Sky providing public service to its subscribers? A scroll down your EPG shows a significant amount of quality programming that does provide public service, doesn’t it, but that’s not talked about very much?

DARROCH: I completely agree. This is an industry that has often relied on public intervention and subsidy. In contrast, I think Sky’s journey has been a story of how risk-taking in commercial businesses and investment by private enterprise can deliver great outcomes for customers and really very high-quality public-value content. We’ve been a constant force for change and progress, whether that was creating choice in television from three channels 20 years ago to the range of channels that are available today, whether that be investing in high-quality content, or whether it be innovating to improve the customer experience and adapting to embrace new opportunities as new platforms develop so our content can be distributed more widely. And at a time when free-to-air broadcasters have been under pressure to cut back their program budgets, thanks to our robust subscription model, we’ve been able to continue to invest in very differentiated content.

 

So, for example, we now have four dedicated arts channels, two in standard definition and two in high definition. We’re doing more and more original drama, like The Take, and high-quality documentaries, like Ross Kemp: Middle East. These are all great ways that we can offer public-service-type content that our customers love and we think really adds to cultural life in the U.K.

 

WS: In what ways is Sky reaching out to the communities it serves—trying to make a difference by making connections beyond the TV screen?

DARROCH: Well, we’re certainly very clear at Sky that if we want to be successful for the long term and really build a sustainable and durable business we need to make a wider contribution for two pretty simple reasons. First of all, business needs a stable economic, societal and environmental foundation on which to build its future success. All businesses need to play their part in helping to create that environment and framework that will allow them to be successful. And secondly and as importantly, we know that our customers, our employees and also our shareholders increasingly expect us to play our part in the issues that our society faces today.

 

Businesses that fail to make the grade and step up to play a role will increasingly pay the price in trust and loyalty from a broad range of stakeholders. At Sky, sustainable success is central to how we do business. We’ve always looked to the long term, so looking to wider issues is very natural for us.

 

In addition to looking to do the right thing in the way we do business day to day, we have a commitment to a bigger picture, which is underpinned by three key strands: creating a healthy environment, increasing participation in sport and bringing the arts to more people. We are always looking for ways to go greener and to inspire others to do the same. We’ve already set a very tough set of environmental targets for our own business, but we are also working with [the environmental organization] WWF and our customers to try to save over a billion trees in the Amazon rainforest over the next three years.

 

In sport, we are working with our partner British Cycling to get a million more people in the U.K. cycling regularly for fitness through a range of initiatives, like free mass-cycling events in city centers, to a new professional road-racing team called Team Sky, which [we hope will help] inspire new generations of cyclists by winning the Tour de France.

 

We are also one of Britain’s largest corporate supporters of the arts and we continue to focus on how we can open up the arts and make it more accessible to more people more easily. Last year we co-produced Antony Gormley’s One & Other. That project saw a different individual take to the Fourth Plinth in Trafalgar Square every hour of every day for 100 days. We filmed it via a live 24/7 web broadcast and then we did a lot of highlight programming on our Sky Arts channels.

 

Those are good ways that we can not only make a contribution but we can use our voices as a large media organization to amplify not only what we are doing but the issues that we all face, and encourage our customers and viewers to get involved and take action as well.

 

WS: What growth areas do you see in the next 18 to 24 months?

DARROCH: First I would say that the economic backdrop in the U.K. is going to remain uncertain. However, pay-TV penetration in the U.K. is still only 50 percent, so around half of the marketplace has not yet chosen to upgrade to some form of paid-for service. I think there is a lot of room for growth there.

 

Home entertainment generally will continue to be an area where customers remain willing to pay for high-quality ser­vices, particularly as the gap between the free and pay experience widens. And I think that HD will continue to be the leading trend in television, with the number of HD-ready TV sets continuing to grow—we expect them to hit around 14 million homes by the end of this calendar year.

 

We are also going to start to see the emergence of 3-D as a trend not just in television but in other home-entertainment areas as well, particularly in games and, of course, movies. We have to wait and see how big that trend ends up being; it will kick off when 3-D-ready TV sets start hitting the high street from the spring onwards.

 

And then, while the majority of people continue to watch linear channels, new platforms and new solutions across the industry will increase choice and flexibility for viewers.

We are well placed as a business to capitalize on all of those trends. It will require us to keep investing, changing and doing new things, but if we can do that then we should be able to attract more customers and to encourage our existing customers to take more services from us.

 

WS: There is starting to be talk here in the U.S. about people saying, I can get so much online for free that I really don’t want to pay my cable subscription anymore. Are you seeing any of that starting to happen in the U.K.?

DARROCH: No, we’re not. If we look at the last 12 months, our rate of growth as a business has actually accelerated versus the previous 12 months. And we continue to see consumption of linear TV as being a very, very popular way for families all around the country to entertain themselves. But I think the key reason is that we offer very differentiated content and a much broader range of choice than free content. As an example, in my own family, there are many different views on what to watch—the real advantage of a service like Sky is it can offer great content for the whole household. So we continue to see paid-for content as a very attractive way to do business.

 

Great quality content combined with customer-led innovation, backed up by great service, great value and a brand that they can trust—that’s an important cocktail to keep your customers satisfied.        

 

WS: You have put HD at the center of Sky’s strategy. How is that paying off for you?

DARROCH: It’s paying off well. We took a decision to launch HD a few years ago, seeing it as a very attractive investment for us to make. The response that we’ve received from customers has been very positive. We now have over 2 million customers subscribing to our HD service. As we head into 2010, we’re pushing HD even harder: now, new and upgrading customers get a Sky+ HD box, whatever package they take. That makes it easy and efficient for them to upgrade to additional services, but it also enables us to roll out innovations even faster to our customer base. And those customers who choose to take an HD subscription pack receive the box for free, making Europe’s best HD offering more accessible to more people. We will also continue to add more value to our HD service over the next 12 months: we’ve just rolled out a new electronic programming guide to all those boxes, and we started 3-D this year and we’ll follow later this year with video on demand.

 

WS: How do you decide when to offer something new?

DARROCH: First of all, we never stop, we’re constantly looking for ways in which we can improve our service. Innovation is absolutely at the heart of what we are about; it is what our customers expect from us.

If we ever did stop, we’d be in trouble: the marketplace is very competitive, and we know that our customers are only ever one phone call away from cancellation, so it’s always in our interest to keep offering something fresh and new to excite and retain customers.

This year we are launching 3-D in the U.K. It will be Europe’s first 3-D channel, which we’ve started to offer to commercial premises, and we will follow that up later in the year to homes when 3-D TVs become increasingly available on the high street. We will also launch a brand-new video-on-demand service later this year.

 

As well as offering new technologies and products, we also want to constantly offer more quality content and content that really stands out in our customers’ homes. We’re offering customers something new across the whole range of services we provide, and making sure that there is always something down the pipe that hopefully will surprise them and that they’ll enjoy.

 

WS: And are your new offerings also a way of attracting new subscribers?

DARROCH: Yes, certainly. We see two trends when we offer something new. First of all, it persuades some people, who so far had felt Sky wasn’t for them, to say, “I’m now ready to sign up.” But we also see our existing customers— and we are now in one-third of all homes in the U.K.—giving us more of their business, taking more of our additional services.

 

WS: How much are your subscribers watching live, how much through their PVR and how much online?

DARROCH: If you look at Sky+, which is now in half of all our customers’ homes, we estimate that time-shifting is used about 10 billion times a year. Something like 18 percent of viewing in all Sky homes is time-shifted. There’s also a growing appetite for content on our websites and for our mobile-TV offerings as well. Having said that, you shouldn’t underestimate the popularity of linear channels, which continue to take the lion’s share of viewing.

 

WS: Is the viewer’s desire to watch whenever, wherever a growing trend?

DARROCH: It is. First of all, we’ve seen it very clearly through the increased level of time-shifted viewing via the PVR. But also, we’re starting to see customers wanting more portability so they can consume content away from home, through Sky Mobile TV, for example, or our apps for the iPhone and 3G networks.