Sky is preparing to phase out its reliance on Satellite broadcasting, as BT is pummelled by the markets.
“Why would I want to cannibalise our own products,” said senior executives at Blockbuster? A major chunk of its revenue came from fining people for the late return of videos, and when some new whippersnapper of a company called Netflix offered a fine free service, the big wigs at the video retailing giant had a good laugh.
And here is the lesson of disruptive technology, cannibalise or be eaten.
Sky’s core business model is selling subscriptions to homes with its satellite dish. It’s a good model, once the dish is there, on the roof, it feels permeant, and if you had the dish installed for free, you can’t just cancel, you are locked into a contract,
Why would Sky want to change that? Why would it want to provide its service, but over the internet? Why would it want to cannibalise its own product? Answer: because it has to?
And so it is focusing on Sky Q, which is Sky over the internet. Its hope is to draw in two million users.
The company is moving away from satellite broadcasting.
With BT and Netflix breathing down its neck – and Amazon Prime – it has to.
But this market has changed. Barriers to entry have fallen. Netflix is not an expensive service.
Netflix has been investing heavily in content production, Sky in internet infrastructure. Time will tell which approach is superior.
Meanwhile, the BT share price has taken a beating. A small subsidiary that many shareholders didn’t even know existed has got itself into an accountancy scandal – creating a £530 million hit on BT.
That is a lot of money for a small part of BT.
The markets are fretting for more than one reason. The scandal is bad enough, but many are not happy with the way it was handled: BT has known about this since last summer, it took until this week for the full extent of the problem to be exposed.
But BT also saw less revenue than expected thanks to Brexit related falls in sterling.
While Sky frets over what to do about Netflix, and what it sees as unfair competition from BT ‘abusing its monopoly power’, shareholders in BT fret over its pension deficit – now around £10 billion, and the ongoing pressure from the regulator. To many, it feels if the regulator doesn’t like it if BT is too successful.
Both BT and Sky have got bigger battles to fight: On one front, there are the likes of Netflix, Amazon, and if they can get their acts together, the BBC and ITV, who face new global opportunities in the era of super-fast internet. Then there is the threat posed by new technologies creating new types of internet access: 5G, Li Fi, and even from the likes of Alphabet, Facebook and Elon Musk, who want to blanket the world in cheap, ultra-fast internet access.And then there is virtual and augmented
And then there is virtual and augmented reality, and convergence with video games.
Interesting times, and to survive companies may have to an awful lot of self-cannibalisation.