Feature

Is BSkyB paying too much for its customer acquisition?

COMMENT - There may be no industry benchmark about how much a new customer should cost to recruit, but BSkyB is at least one brand that has found itself paying more to attract customers to its HD service - up from £250 to £306 in its latest figures. Caroline Kimber, head of data strategy at agency Stephens Francis Whitson, questions the long-term viability of such a strategy.

BSkyB: adding new customers but at a higher cost per customer
BSkyB: adding new customers but at a higher cost per customer

Finding yourself increasingly staying at home watching the telly with a bottle of wine and a takeaway? Don't worry, you haven't suddenly slipped into senility (well, not all of you anyway), you are part of a growing band of ‘stay at homes'; the very people who are making it highly unlikely that Rupert Murdoch and Richard Branson will be joining the rest of us on a ‘staycation'.

With both pay-TV broadcasters seeing an upturn in subscribers - flying in the face of a recent poll by YouGov and Callcredit which claimed 80 per cent of people considered subscription media a luxury - the ongoing battle for the ‘stay at home' pound  is likely to intensify. A high volume DM campaign promoting its HD service helped BSkyB add 124,000 subscribers in the past three months.

But the fact that BSkyB has found itself paying more to attract these customers - up from £250 to £306 in its latest figures - has raised a few eyebrows over the long-term viability of such a strategy, although there is no industry benchmark about how much a new customer should cost to recruit. Some 300,000 customers signed up for this service in the fourth quarter, and it takes about 18 months to recoup the extra money from each customer, meaning fighting churn is crucial.

But in the current climate, shouldn't companies be doing everything in their powers to rein in costs, and run a tight ship? A closer look shows those who question this are blind to the realities of the market.

The pay TV sector has been dominated by Sky and Virgin Media for years, with BT only recently joining the fray. No one is in any doubt who has the stronger grip on the market; it's not the man with the beard, it's the Aussie with very deep pockets.

Of course, this is a long-term battle, so Sky and its investors have been willing to shoulder the extra costs. Let's not forget it has already fought off BSB (and the ‘squarial') and NTL, and the war is unlikely to be settled any time soon.

There are many other companies out there who would love to be in Sky's position. After all, it has recently announced the largest growth in customers for five years - up 124,000 to 9.4 million - while the amount each user pays has hit a record high of £464.

Yet while these figures are impressive, as is its low customer churn rate, at just under 10 per cent, Sky is reported to have made promises to the City about the results it would get and the number of new customers acquired was one of the key metrics.

Also, according to the Daily Telegraph, July was the maturing of a long term incentive plan that gave Sky's top directors big bonuses and allowed them to vest shares. Does this mean there has been a big push to get in new customers at any price?

Meanwhile, Virgin has stolen a march on its rival by being more successful at cross-selling other services and differentiating its broadband offering. On average, Virgin customers spend nearly £44 a month with the company, above the average for Sky (£38), while 58 per cent are now taking at least three of Virgin's four services (TV, landline, broadband, mobile).

Maybe this is because it's a very simple proposition; maybe it's the strength of the data; but one thing is certain, there are a finite number of new pay-TV customers out there - despite the rise in ‘stay at homes' - so getting them to spend more will be crucial.

But it looks like this particular soap opera will run and run. Now, where did I put that remote control and bottle of wine...

Caroline Kimber is head of data strategy at Stephens Francis Whitson