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Sky Lights Up With Interactivity

As the story on page 6A illustrates, U.S. cable operators will likely have their hands full when Rupert Murdoch's News Corp. buys DirecTV.

What Murdoch has done with British Sky Broadcasting plc in the United Kingdom will likely serve as a model for his U.S. operation. Forget about competing on price: A new battle will be joined next year, and the ground will be advanced services.

A couple of things are striking about the BSkyB experience. To begin with, Murdoch has fully embraced DVR technology. Sky has more than 100,000 DVR subscribers and, at an analyst conference a few weeks ago, Murdoch waxed poetic on the technology.

First, Murdoch believes most new DBS subscribers in 2004 and beyond will take a set-top with a DVR built-in. The ability to control live television will be too much of an allure to turn down, he feels.

What's more, Murdoch believes the cost for those DVRs will continue to plummet. Subscribers will be able to get the DVR set-top for nothing. The monthly fee, he says, will be little or nothing.

Murdoch has even worked out the equation for eating the gradually reduced cost of the DVR set-top, compared to other set-tops — which is probably the most scary thought of all for cable operators.

True, if technology costs drop cable can enjoy some of the same benefits that Murdoch will. But there's always that extra cost, which someone like Murdoch would be willing to digest in the name of subscriber acquisition.

By this time next year, operators may be weighing whether or not to give away DVR boxes, like their DBS competition. And I haven't even mentioned EchoStar Communications Corp. chairman Charlie Ergen's multi-pronged DVR strategy, which will create even more noise in the marketplace.

A second worrisome area: the features on Murdoch's BSkyB platform. Sky is filled with various forms of interactivity, some of which are quite popular.

For both the news and sports categories, consumers can choose from multiple feeds. Viewers can watch English Premiere League soccer matches from a choice of eight different camera angles, tracking their favorite players on the field. Imagine the same application with the National Football League's "NFL Sunday Ticket" — the one key out-of-market sports package that's beyond cable's reach.

Murdoch's Sky News also offers eight broadcast carousel channels from which consumers can get eight different top news stories. It's a pseudo on-demand format. Want coverage of what's going on in Iraq when you get home from work? Just flip to one of those eight channels. Forget for the moment that it's not true VOD. If Sky puts up the eight most popular stories, that will probably cover the needs of most viewers.

Games are another area in which Murdoch has ventured into DBS interactivity. Sky has parlor/arcade-type games, which are barely being tested in the U.S.

Another big area is sports betting. It's an open question whether Murdoch can work through national, state and local laws to offer the same service in the U.S., but you can bet he's working on it. It's a solid revenue stream for Murdoch.

The service covers not only betting on the outcome of the sporting event, but on individual events throughout the game: Think in terms of betting on who will score the first goal in a soccer match, or if there will be a shutout, then translate that to the NFL. Fantasy sports is big business in the U.S., and Murdoch's Sky application is only one step removed from that.

Not everything interactive has worked that well in the U.K. The walled-garden shopping applications have been scaled back somewhat. Other applications might not translate that well.

The point is: Murdoch's history is not to compete on price. He's more than happy to dream up and test new applications and see what sticks.

All this will force cable operators to be ready to respond. The speed at which the industry is rolling out DVRs is one answer. There may well be some attendant downside, in terms of advertising, with long-term consequences that have not yet been fully thought through. But cable can't afford to wait.

And cable also needs to take a close look at the applications that Sky has, which cable doesn't offer, and at least start the research-and-development effort to determine what is feasible here. Lab or field trials for new services would be a step in the right direction. The time it takes to dream up and implement new applications can be nine months or more.

Better to get started now, rather than wait a year and end up behind an interactive eight ball.