Discovery Communications is on the verge of pulling its channels off U.K. pay-TV provider Sky and the fallout could accelerate Discovery’s OTT strategy, according to BTIG analyst Rich Greenfield.
Both Discovery and Sky have alerted viewers that Discovery’s networks will disappear from Sky after Jan. 31. According to Sky, Discovery’s channels are “unlikely to be available” in the pay-TV packages it offers in the U.K. and Germany.
According to Greenfield, Sky pays Discovery £100 million annually to distribute its channels in the U.K., Germany and Italy (where the companies still have 18 months left on their current distribution deal). Discovery’s channels, however, accounted for only 2.8% of Sky’s total viewership over the last 10 years. He added that, even with the addition of channels like Eurosport, it’s hard to imagine that Discovery is “must have” programming for Sky.
“We believe Sky is fully committed to shifting the dollars they pay Discovery into exclusive, original programming (an increasingly important focus to distinguish their platform from peers). In turn, the question is can Discovery accept lower fees from Sky and try to make it up through future over-the-top bundles (vMVPDs) and their direct-to-consumer ambitions (with products like Eurosport Player)?” Greenfield asked in a research note.
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Eurosport Player, which Discovery CEO David Zaslav termed a “sports Netflix,” is a direct-to-consumer product that offers live sports content for $8 per month. But Greenfield said that it and Discovery’s other OTT strategies may not offset getting booted from the traditional linear bundle.
“From a programmer standpoint, we fear the aggregate number of direct-to-consumers subs is less than they believe are out there at the price points they need to compensate for what is happening to their base, linear bundle revenues; not to mention the continuity risk of not having to sign up for direct-to-consumer offerings for the entire year,” Greenfield wrote.
With cable networks being squeezed as bundles get skinnier, Greenfield believes the result will ultimately be two sets of MVPD offerings globally, one that bundles the most expensive channels and one that bundles lower cost channels at low monthly prices.
“We hope to see Discovery join with other programmers in the U.S. and abroad to create vMVPDs with lower-cost non-core channel bundles,” Greenfield wrote.