On the box

The future of television is here: on your games console
August 27, 2009
Above: everything in one—a qwerty keyboard controller for the Xbox 360




As well as watching DVDs, listening to music, messaging mates and playing games, there’s one more thing that owners of Britain’s 4m Xbox 360 consoles will be able to do on their prized machines from this autumn: watch television. Specifically, they’ll be able to watch both live and recorded television programmes on Sky’s "Sky Player" service, courtesy of a deal struck earlier this year with Xbox manufacturers Microsoft. The fee hasn’t yet been announced, but it’s a service that will be available to existing Sky customers too, complete with console-style extras like social networking and real-time updates. And it’s this technological edge, rather than any particular advance in content, that could consolidate BSkyB’s position not just as Britain’s biggest pay television service, but as a global leader in the increasingly tricky business of making money out of media content.

Above all, the Xbox deal shows Sky recognising that the nature of its business is changing. Today, the real struggle is not so much to be the standalone television provider of choice. It is to be a part of the integrated technology package that modern households remain willing to pay a monthly premium for. And it’s no coincidence that Sky has recently posted perhaps the most impressive results to come from any media company during the recession: a rise in pre-tax profits to almost £0.5bn over the past year, and a 7 per cent increase in revenues. In 2010, it is likely to hit the milestone of 10m paying subscribers to its television service in Britain, putting it several leagues ahead of rivals Virgin (3.6m) and BT Vision (500,000).

It’s especially impressive given that commercial television is a market in which most other players are busily losing their shirts. ITV reported pre-tax losses of over £100m over the first half of 2009; Irish pay-channel Setanta went bust in June; Channel 4 is also slashing budgets amid tumbling revenues. And Sky’s rosy picture is a huge contrast to the gloomier one surrounding its parent company. News Corp owns just over a third of Sky—and its chairman, Rupert Murdoch, is the father of James Murdoch, who has headed Sky from 2003 first as CEO and now as chairman. News Corp just reported quarterly net losses of $203m, following a staggering previous quarter loss of $6.4bn—and Rupert Murdoch recently announced that the era of free online content, for his newspapers at least, will end by the summer of 2010. He must surely be hoping that as elegant a solution exists for online news as Sky has demonstrated in television.

What is Sky’s trick? It’s remarkably simple: persuading people that, in a world awash with free content, a few facilities remain worth paying extra for. These include high-definition images, exclusive live access to sports and certain premium programmes, and flawlessly functional recording and viewing technology. You can get some of this with Virgin and BT, but Sky is a brand apart in public perception. And it’s this perception—together with a relentless pursuit of the technological high ground via everything from a vision of “Sky Networked Homes,” with broadband boxes in every room, to a 3D channel launching in 2010—that puts the company in such an enviable position.

High definition television has been identified by most analysts as the jewel in Sky’s current crown. But it’s the Xbox deal that embodies the most important truth about selling media content in the 21st century. From albums to daily news, consumers are now almost pathologically averse to paying for content they can get elsewhere for free. But if you can convince them that you’re offering an indispensable media service that cannot be had at the same quality or convenience anywhere else, they will pay up month after month.

A different new media business, videogames, has traditionally set the trend here. At up to £50 for a major new title, or £10 per month for a hit online game, they offer big fun at a big price. They also represent a community of players who identify strongly with premium brands—Sony, Nintendo, Microsoft—and expect to pay to be part of the cutting edge.

With the idea of playing a “game” separately from watching DVDs, accessing premium online services and networking with your friends becoming increasingly redundant, Sky has won itself a slot on an especially holy piece of modern ground: that magic box in the living room where listening and viewing meet socialising, interacting and play. Here, content doesn’t want to be free: it wants to be viewable live in high definition while you’re also recording a couple of movies and playing a round of Guitar Hero with someone in Alberta. If only they could make paying for newspapers that much fun.