Europe needs swagger

Sporting life: Sky's search for must-see viewing

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The man behind the TV channel best known for its soccer coverage can see a time when Sky might "walk away" from showing some sports.

"Our investments in entertainment content and of course what that's allowing us to do is appeal to more people in the household and perhaps [to] people who don't want to get Sky for sport," Sky CEO Jeremy Darroch told CNBC.

"It gives us then more options around what we invest in. So just as we've invested more in domestic football, for example, we've walked away from some of the sports as well."

Sky, whose satellite TV network boasts more than 10 million subscribers in the UK and Ireland, last year entered a major bidding war with broadband rival BT Sports for the rights to England's soccer Premier League. Between the two of them, Sky Sports and BT Sport will pay £5.14bn ($7.36bn) for the rights to air the U.K.'s Premier League until 2019.

Will Sky keep hold of sport rights?

Sky has been pushed into increasing its spending on Premier League rights to retain its coverage. According to the media website Infomitv, Sky will pay £1.39 billion a year for five of the seven television packages, an increase of 83 percent on what it paid in the last round and £330 million more than analyst forecasts.

"It's always been seen that if Sky lost the Premier League, that would kill them and by increasing their offer for the Premier League last time around by sort of more than 80 percent, they kind of confirmed that thinking. It was so important for them to hold onto the Premier League rights… they were prepared to spend more than anyone thought they were going to spend to renew that deal," Tim Westcott,principal analyst, television media, at IHS, told CNBC in a phone interview.

It has retained the maximum number of match packages it was allowed under the auction rules, with a total of 126 games a season at an average cost of over £11 million a match, reported Informitv.

"Actually, our sports rights as a percentage of sales haven't really increased over time because of course we've been growing ourselves at such an accelerated rate," Darroch told CNBC.

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Blockbuster entertainment

Since its launch in 1990, Sky has grown to become the largest pay-TV player in Europe, with 21.47 million retail customers, ahead of Liberty Global, which has 16.19 million, according to the Informitv Multiscreen Index.

Sky added 337,000 customers in the last quarter of 2015, of which 205,000 were in the United Kingdom and Ireland. Sky has a further 4.21 million wholesale customers, most of them through Virgin Media's cable operations in the U.K..

Following the 2014 merger of Sky in the U.K. with Sky Italia and Sky Deutschland, it now serves 21.5 million customers across Italy, Germany, Austria, the U.K. and Ireland, reported Variety Magazine.

The channel has scored some big "must-see" series including sword-and-sorcery blockbuster "Game of Thrones," which is produced by U.S. cable network HBO. The finale of Season 5 on Sky Atlantic recorded an audience of 3.1 million viewers in the UK, making it the most-watched Sky entertainment program ever in Sky homes, according to a Sky press release.

Darroch told CNBC that the content Sky Atlantic acquires from US production houses such as HBO and Showtime "really anchors our content offering and gives us great access to all of their creative talent and they are an outstanding production."

Although Sky faces competition from the likes of Netflix and Amazon Prime, Sky Atlantic currently offers viewers exclusive access to U.S. shows such as "Game of Thrones" and "Ray Donavan."

Will Sky keep hold of sport rights?

Sky also spends £4.9 billion ($7.1 billion) on content a year, split between acquisitions and its own productions, according to Variety.

"With our own productions, that gives us a different thing -- slightly more creative freedom. We can control that process a bit more than we could in a different relationship," Darroch told CNBC.

"If they actually own the series themselves, then they can do two things: One, is actually generate an additional revenue stream by selling the programs on to third parties (which they're now doing with Sky Vision) … and the second thing they can do if they want to go outside their existing five territories into other countries, they've already got a library of programs that they can exploit," explained Westcott.

Sky Atlantic has produced original series including "The Last Panthers," "Fortitude" and "The Young Pope," starring Jude Law and Diane Keaton, out later this year.

"What we're really trying to do is do bigger high quality pieces that we can really get behind as a business so for us to work with the likes of HBO and these others and just create bigger individual productions is in our interest and those in their interest," said Darroch.

Darroch himself is an avid viewer of the HBO series Game of Thrones, airing only on Sky in the UK.

"I'm a big fan. It's fantastic, I mean it's an outstanding piece of television, isn't it really? It's the biggest TV series in the world right now," he raved.

Jeremy Darroch, chief executive officer of Sky
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Business of broadcasting

Although social media sites such as Facebook count 1.6 billion users daily, television advertising is still favoured by advertisers for brand building and awareness. Sky, which counts 23 million viewers a day according to Darroch, has made significant investments in its advertising technology which allows more targeted advertising.

"Those 23 million homes are highly engaged and broadcast media can be a very effective way for advertisers to position their brand… whereas a lot of viewing on the internet, you may not know that anybody's there," said Darroch.

Who better to partner with than HBO: Sky CEO

Out of total revenues of £5.7 billion in the six months to the end of 2015 (up 5 percent), advertising contributed £359 million (up 8 percent), compared to £4.9 billion for subscriptions (up 4 percent), according to a Sky corporate report.

"They could probably argue that they're able to define their audience better than someone like Facebook. They know who's watching," Westcott told CNBC.

"They've been pretty sophisticated about the metrics they offer advertisers … they've made a big deal out of that [targeted advertising] because they're a pay TV provider and all the signals go through a set-top box, they know more about people's viewing behavior then a free-to-air broadcaster."

The future

According to Sky's Darroch, the pay-TV channel will be focusing on expanding both its in-house and partnership productions.

"What you'll see over the next few years is us continuing to develop our big, big partnerships and that really being a core part of Sky's offer but then our own production business only growing to complement that in terms of size and scale," said Darroch.

On Monday, Sky announced that it had signed its first ever pan-European rights deal with Sony Pictures, which will give it the right to first air major Hollywood films in Europe.

Sky is also set to announce its third-quarter results Thursday. According to UK website This is Monday, analysts predict Sky will add up to 80,000 new customers, and see its revenues grow 4.6 percent with profits expected to rise 11 percent to £391 million, thanks in part to Sky's newest set-top box, SkyQ.

"It's a company that doesn't stay still, which is why it's so successful," said Westcott.

Writer: Jessica Hartogs

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