Feature

Sky - Twenty years of revolution

From its unlikely beginnings in a 'car-park on the way to Heathrow', Sky Television has changed the face of broadcasting. Ian Darby charts the secrets of its success.

Sky Television began broadcasting at 6pm on 5 February 1989. Its four channels signalled the birth of multi-channel television in the UK and eventually led to an explosion in digital television that shattered the terrestrial status quo.

The broadcaster was backed by its majority shareholder, Rupert Murdoch's News International, which had acquired a little-known satellite channel in 1983 for £1 and rebadged it as Sky Channel (broadcasting in Ireland from 1987). It soon added Sky News, Sky Movies and Eurosport and was up and running. The first ad to appear on Sky was a spot for the Amstrad Fidelity camcorder. A small irony given that Sky now owns Amstrad.

Andrew Neil, the editor of The Sunday Times who was brought in by Murdoch to launch Sky as executive chairman, says: "It took Britain 60 years to get to four channels, within six months we'd doubled that figure."

Sky's early months were a hard grind as it battled to bring in subscribers and fought media portrayals of its service as "council house TV". There was also the looming spectre of competition in the shape of British Satellite Broadcasting: a well-funded, official, Government-supported operation gearing-up for launch. "Almost everybody said that we'd fail," Neil recalls.

Sky's attitude from day one was to challenge TV establishment norms. It secured premises that, according to observers, resembled a "car-park on the way to Heathrow" and bought in production and transmission technology that wasn't standard.

This lack of convention also extended to its ad sales operation, later known as Sky Media. Neil says that he looked around the UK market for an ad sales chief without an obvious candidate emerging. He says: "Anybody with any experience of the market was at ITV, which was essentially a money taker - people there were used to their four- hour expense lunches and that didn't fit with our culture at all."

Instead, Sky turned to Pat Mastandrea, the vice-president of sales at Fox Network in the US, as its first managing director, with responsibility for sales. Mastandrea, now the chief executive of the US headhunter The Cheyenne Group, faced a struggle in getting advertisers to commit to Sky.

Some media agencies weren't interested due to Sky's limited reach and negative perceptions of its audience. However, the recently launched Zenith Media was one agency that was keen to strike a deal, especially as the satellite broadcaster offered a low-cost alternative to ITV. Steve King, now the worldwide chief executive of ZenithOptimedia and a media group head at Zenith's inception, recalls that his first deal with Sky involved each spot costing just £10. He says: "Sky wasn't seen as something that would eventually challenge ITV. Most people would have chosen not to deal with Sky but we set up a 'satellite department'."

Zenith's commitment to Sky paid off when it was appointed as Sky's first media agency and perceptions of Sky in the ad world slowly began to change as it built its subscriber numbers (to more than one million by the time of its merger with BSB in 1990). The merger with BSB (which was backed by the likes of Granada, Pearson and Reed International) was hastened when BSB's business model, which included buying its own satellites to broadcast its five channels and investing in the "squarial" dish technology, buckled under pressure from Sky.

Though it was technically a 50/50 merger, the creation of BSkyB paved the way for a Sky takeover. Neil, who had earlier in 1990 introduced The Simpsons to UK screens, decided to move on. He had unfinished business at The Sunday Times and says he also clashed with Murdoch: "I always held the view that we had to develop more British programming - people view TV differently to films, they're happy to watch US movies but expect some original TV content. So I proposed a soap, sitcoms and dramas but he didn't want to know, so I thought what's the point?"

Enter Sam Chisholm, a hard-nosed New Zealander who had made his name running Australia's Channel Nine for the previous 15 years. In the early days, BSkyB was losing £14 million a week, and Chisholm was later to describe his early time as chief executive as "an amazing experience, an absolute nightmare". Ruthlessly combining "streamlining" of the merged operation with heavy investment in new sports content, Chisholm took Sky into a new era.

In 1992, Sky signed an exclusive deal to show live action from the newly formed football Premier League. Ad sales were now headed by the irrepressible Peter Shea, who had something new to take to advertisers.

Andy Jones, the chief executive of Universal McCann, was a board director at McCann Erickson at the time. He says: "Peter Shea was a very persuasive individual in the business, but Sky didn't have a particularly enticing prospect to sell until the Premier League deal in 1992. Then it really began to make a significant impact."

Sky was also evolving as a platform and began to strike content deals with rival broadcasters. One led to the creation of Granada Sky Broadcasting, a joint venture with Granada headed by the former ITV executive Stuart Prebble, which in 1996 saw the launch of channels including Granada Plus and Men & Motors on Sky. Prebble says: "Content continued to be Sky's issue. It had got everybody who was going to watch sport and movies, so was looking for additional people to buy it. For Granada, it was a way into multichannel and, believe it or not, it was rather prestigious at the time for Sky to be associated with Granada."

During the 90s, Sky continued to grow and innovate. Under Shea's guidance, it also grew its share of the ad market on the back of a strong and attractive subscriber base. This, and TV inflation, helped it to increase its ad sales by 30 per cent in the year to June 1998 to reach £195 million. Later in the year, Sky unleashed Sky Digital, which was to drive growth on the back of a hugely expanded channel offering and better technology.

Competition was looming for Sky in the shape of the ITV-backed ONdigital (later rebranded as ITV Digital). However, this was shortlived as ITV Digital collapsed by May 2002. Sky had demonstrated its muscle and ability to take on competition once again. Prebble, who had moved to become the chief executive of ITV Digital, says of Sky's tactics: "Sky would always negotiate as though there was no war and fight war as though there was no negotiation. Sky thought digital terrestrial might work so wanted to be on board with ITV Digital and had to let us have things like the sport but other parts of the organisation were trying to beat us to death."

In reality, ITV Digital seemed to contribute to its own demise by signing a £315 million deal for the second- rate Football League rights and in withholding ITV Sport and the main ITV channel from the Sky platform in the belief that it would harm Sky. For a time, ITV Digital's demise eased the competitive pressures on Sky. Prebble maintains that this had negative effects for viewers. "All the time ITV Digital was extant, the price of pay-TV didn't go up," he says. "The second it went out of business, the price went up. It gave Sky a monopoly on pay-TV."

However, Sky continued to innovate at a rapid pace, its growing platform business aggregating a vast array of content from other providers. As Jones says: "Sky as a platform, bringing other multichannel channels into the equation, had a far greater impact on TV than anything else in the past 50 years."

Shea left Sky Media in 2003 after 12 years in charge and was replaced by Mark Chippendale as sales director. Chippendale left the following year following the appointment of Five's deputy chief executive, Nick Milligan, as the managing director of Sky Media. This was a period of management change at Sky, which had seen the chief executive, Tony Ball, succeeded by James Murdoch and the programming boss Dawn Airey, the managing director of Sky Networks, arrive from Five.

Agencies say that Sky Media has evolved considerably in recent years, becoming more sophisticated as levels of multichannel viewing have increased. Jones says: "In the early days, a deal was done in the pub on the back of a fag packet. But now it's one of the most sophisticated companies in TV sales."

While the bulk of Sky's revenues come from subscriptions and other non-advertising streams (advertising accounts for around 8 per cent of total revenues), it has increasingly recognised the importance of ad sales. Innovations such as Sky+ and the interactive "red button" have also enabled Sky Media's team to develop new ad solutions; later this year, "green button" interactive ad services will launch, allowing for larger chunks of ad content to be delivered into viewers' homes. In 2011, Sky plans to launch individually targeted TV ads direct to viewers' Sky+ boxes.

Milligan says: "Smart TV will enable TV advertising to be one to one rather than just one to many; the opportunities are immense and it could change the current TV advertising model."

Sky seems well placed to ride the wider economic pressures on the broadcast market. While other broadcasters are making cutbacks, Sky is investing in 1,000 new jobs as it expands its HD service on the back of a rise in operating profits of 31 per cent.

There are still challenges for Sky, not least in reaching its target of ten million subscribers by 2010, and, despite settling its long-running carriage dispute with Virgin Media, it is embroiled in more regulatory debates than ever (including ongoing appeals over a Competition Commission ruling that it must reduce its stake in ITV and an Ofcom investigation into pay-TV). That said, Sky's 20 years have been characterised by an appetite for growth and innovation that remain part of its DNA.

HOW SKY CHANGED THE TELEVISUAL LANDSCAPE

- Andrew Neil executive chairman of Sky Television at launch

"The culture is still lean and mean, it provides choice and variety and is not one of the fat-cat broadcasters. I'm very proud of Sky - it has revolutionised British broadcasting by allowing all the British broadcasters to get on digital platforms, and develop things such as HD. Just as it's hard to imagine British broadcasting without the BBC, I think the same can now be said about Sky."

- Steve King, worldwide chief executive, ZenithOptimedia (Zenith Media was Sky's first media agency)

"Sky was seen as the ugly new entrant to TV, not really welcomed by anyone. It wasn't seen as something that would eventually challenge the likes of ITV. Many times, people questioned whether that whole model, with the cost of putting dishes in and the lack of any direct programming, would survive. The acquisition of football rights transformed all that."

- Stuart Prebble, former chief executive of bitter rival ITV Digital

"I used to speak to the guys at the Office of Fair Trading and they were afraid of Sky. They'd ask Sky a question and claim to get a furniture van full of documents in return. The OFT would say: 'We've got three lawyers, they've got 80.' But shame on the OFT for allowing Sky to get away with this approach, while you just have to admire them (Sky) for it."

- Jeremy Darroch, chief executive, BSkyB

"Our business began because we saw that viewers wanted the freedom to choose. The same was true of advertisers, so long restricted to the limited options of the terrestrial TV world. Few could argue that the opportunity for brands to connect with consumers hasn't become much richer in the multichannel, digital environment."

TIMELINE

5 Feb 1989: Launch of Sky Television, the UK's first satellite TV service, with four channels, including Sky One and Sky News. Andrew Neil is the executive chairman.

1989: First sponsorship is signed on the Sky Channel for Coca-Cola Hit Mix.

1990: Formation of British Sky Broadcasting, following a "merger" of Sky with BSB. Sam Chisholm takes over as the chief executive. Sky One brings The Simpsons to the UK.

1992: Sky Sports, which had launched the previous year, signs exclusive TV rights deal with the new FA Premier League and Ford signs to sponsor coverage, the longest-running TV sponsorship partnership in UK television history. The first match shown is Nottingham Forest versus Liverpool.

1993: Sky launches its first package of basic subscription channels - with 14 channels including Discovery, UK Gold and Nickelodeon.

1996: Frank Bruno versus Mike Tyson - the first live pay-per-view event to be shown on Sky.

1998: Launch of Sky Digital (analogue signal turned off in 2001) with 140 channels - the UK's first digital TV service. Earlier in the year, Mark Booth had replaced Chisholm as the chief executive.

1999: Tony Ball replaces Booth as the chief executive.

2000: UK's first interactive "red button" ad - Chicken Tonight.

2001: Sky+ launches - the UK's first fully integrated personal video recorder.

2003: James Murdoch is made chief executive, replacing Ball.

2005: Sky+HD launches - UK's first nationwide HD service. Sky Broadband launches.

2006: First HD ad runs on UK television during Champions League final - Sony Bravia "balls".

2007: Murdoch moves to chairman role and is replaced as chief executive by Jeremy Darroch.

2008: Sky reaches nine million homes and demonstrates 3D TV into the home for the first time.

IN THE FUTURE

2009: Sky to launch "green button" advertising.

2011: Sky to launch Smart TV - aka targeted substitutional advertising.

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