Subscribing to broadcasting success

BSkyB will primarily be remembered as the company which changed the face of UK broadcasting, through reflecting our changing lifestyles as we move towards the 21st century. BSkyB also created a new Multi Channel television industry through new technology and innovative marketing. In under seven years, BSkyB has become a great British success story and has entered the FT100 Index as one of the top 30 companies. BSkyB is also the world’s largest and most successful satellite pay television operator.

The business sees itself as a Television Broadcaster and technology and marketing innovator. This case study concentrates on BSkyB’s new customer focused strategy, which has been developed to manage subscriptions to its satellite TV channels. Satellite television provides the opportunity for millions of viewers to receive movies, sports, entertainment and news directly to their own homes, from a variety of satellite TV channels. Satellite television provides a television service that is essentially “customer focused”. Viewers no longer have to select from the limited choice of terrestrial TV stations. They can now choose from a menu of channels and programmes, which more closely reflect their preferences and lifestyles.

In this context, we have moved towards a customised service, in which sports fanatics can enjoy nearly 200 hours of top sporting action every week. Movie fans can indulge by watching a previously undreamed of selection from classic British television movies and international movie masterpieces. Children can tune into a number of dedicated kids channels. The choice and variety is endless. In less than seven years, BSkyB has established itself as a key part in the fabric of many people’s lifestyles. Sky currently has over five and a half million subscribers in the UK and Eire and there are very few people who have not “popped around to a friend’s house” to watch a Premiership football match or a brand new blockbuster film.

1982

The story began in 1982, when News International acquired the majority shareholding in the Pan-European Sky Channel. In June 1988, the concept of Sky Television for the UK was announced and in February 1989 Sky Television launched its DTH (UK Direct To Home) service with four channels via the Astra Satellite. These four channels were: Sky One, Sky News, Eurosport and Sky Movies. Sky Movies was the first subscription channel.

In November 1990, Sky and British Satellite Broadcasting (BSB) merged to form British Sky Broadcasting (BSkyB). However, by the end of 1992 BSkyB had accumulated operating losses of £11 million per week and it was clear that a new corporate strategy was required to turn operating loss into profit. Major programming acquisitions, were made, including exclusive live coverage of Premiership football that contributed towards the turn round of the company and the successful global floatation in 1994.

Operating profits increased significantly to £170.1 million in 1994, £245.2 million in 1995 and £315.0 million in 1996, against losses of £47.0 million in 1992. BSkyB was listed in the FT100 Index Top 30 companies and in October 1996, with the share price standing at around £7.00 from a launch of £2.56, the company was valued at £11.0 billion (up from £4.0 billion). One of the issues related to the number of people taking subscriptions for a short period and then letting them lapse. In the satellite business this is known as the “churn rate”. In June 1992, BSkyB’s annualised churn rate was 35%, which meant the company could potentially lose about half a million subscriptions per year from its subscriber base of 1.5 million households. This became a major priority for resolution.

The review, undertaken in 1992, was designed to ensure that one of the business’s key performance indicators, namely reduction in churn rate, was achieved. This study focuses on this critical area. The principal objectives of the strategic marketing review were to minimise:

• Subscription cancellation.
• Accounts System termination (i.e. direct debit payment termination).
• Downgrades (i.e. subscription to fewer channels).

and maximise:

• Upgrades.
• Subscription renewals.

Strategic implications

An example of an unacceptable reason for cancellation would be a customer declining to continue subscriptions, as a result of not watching enough satellite television. In other words, problems created by the subscribers lack of awareness of BSkyB’s full proposition

BSkyB identified three core areas for management focus. These were:

• Maximising customer loyalty by increasing the viewing of channels (i.e. programming and educational strategy).
• Maximising customer turnaround via the prevention of cancellation, termination and downgrade (i.e. marketing strategy).
• Maximising subscription renewals and upgrades (marketing strategy).

These were enormous challenges when viewed against the customer and financial losses being experienced in 1992.

BSkyB market demographics

BSkyB continues ongoing research which enables it to focus on consumer requirements, particularly in terms of programme development. The most valuable markets, where high spenders can be identified, are best summarised as:

• Young males 16-34 years old.
• ABC1 Socio Economic groups.
• Families with young children.

In September 1996, 5.65 million UK homes could receive satellite and cable television, equivalent of a 23.8% penetration of total TV homes. Furthermore, according to the BARB total, from Satellite Homes-Universe in September 1996, 70% of these homes receive their extra channels delivered to them by satellite dish.

In important target audiences, such as young adults, children, men and housewives with children and ABC1s, the penetration levels are much higher and Sky’s viewing profiles match many advertisers’ target groups. This is evidenced by the May 1996 BARB figures, which show that nearly 14.4 million individuals aged four plus now have satellite television in their homes, representing 26.5% penetration of the UK population. Coverage of some key socio economic categories is over a third higher than overall satellite penetration.

Sky viewers do not just watch the programmes, they are also formidable consumers, with their weekly expenditure on groceries being 14% greater than the national average. Additionally, they are responsive to advertising and want to try new products. They are 19% more likely to buy products seen advertised (Source: BARB).

The growth in popularity of satellite and cable television is expected to continue well into the next century. By the year 2000 over nine million homes are expected to receive satellite and cable television (Sources: Zenith Media, Goldman Sachs and Kleinwort Benson). As satellite television is particularly popular with younger householders and men, it is projected that by the year 2000, two thirds of adults under 34 years of age, almost three in five children and 53% of the nation’s men will have access to Sky.

Sky TV Guide

Market research showed that customers were having difficulty in obtaining programme and listing information, covering all Sky channels seven days in advance. In order, to rectify this situation the Sky TV Guide was launched in September 1994 by Sky Television and sent to all ‘Direct To Home’ subscribers, as part of the subscription package. The Sky TV Guide has been enormously successful with a current circulation of 3.5 million and readership in excess of 6 million, making it the widest read monthly magazine in the UK.

It has 1 million more readers than the Radio Times and a staggering 1,750,000 more than the TV Times. The Sky TV Guide has helped to increase viewing and loyalty and has clearly helped to communicate the choice and variety available. However, to perpetuate momentum BSkyB has continually sought to increase choice and value for customers by adding new channels, as can be seen from the dramatic growth of channel availability.

These channels serve a variety of consumer market segments including Soaps, Travel, Science Fiction, History, Racing and many more. By December 1995 Sky reached five million UK homes and satellite channel viewing now regularly exceeds 10% of all television viewing in the UK. In order to prevent cancellation, termination and downgrading from one tier to another, BSkyB created a sophisticated telemarketing campaign entitled ‘Turnaround’, with the aim ‘Fighting to keep every customer’. All customer service telephone operators were trained with new skills in handling customer issues or problems that could potentially result in cancellations.

In the past, customers relinquished their subscriptions without being asked why they had done so. Now, the company ensures the customer maximises the use of all the channels and the wide range of programmes, so preventing unnecessary cancellations. This clearly demonstrated to the customer that he/she was valued and appreciated.

Additionally, 150 outbound telemarketing operators have been recruited, who are trained to call back customers within 24 hours, after cancellation or termination. This has been hugely successful leading to a significant turnaround rate. Cancelling customers are offered an alternative subscription package and where direct debit payments have failed, customers are notified of termination.

Maximising subscriber renewals and upgrades

BSkyB has engaged in a significant ongoing Direct Marketing campaign. Direct Mail packs have been sent to a database of ex-subscribers together with postcards targeting upgrades to the lower tier subscribers, thereby encouraging subscriptions to new Sky channels.

These campaigns have been accompanied by a series of “on air” promotions. These promos have been produced for all major Movies, Sports and Multi- Channel events. Cross promotions have been targeted to appropriate audiences and special phone numbers have been used to make it easier for customers to respond and subscribe to new channels.

Every company needs to operate in a strategic way. It begins by developing the strategy, supported by market research and then developing the implementation plans. The success of BSkyB’s Subscriber Management and Marketing Strategy can be quantified by the following highlights achieved between 1994 and 1996.

1. The annualised “churn rate” was reduced to 12.9% in 1994, from 35% in 1992.
2. The Turnaround Telemarketing team made over half a million outbound telephone calls, which resulted in over 200,000 subscribers being retained in 1994.
3. The launch of Sky Multi Channels led to 250,000 new subscriptions and 500,000 upgrades.
4. The promotion of Sports and Movies helped to create 200,000 upgrades from existing subscribers.
5. 80% of subscribers pay by Direct Debit, which is a factor in maintaining customer loyalty coupled with the minimisation of administration costs and “bad debts”.
6. The ongoing customer focus and developing marketing communications strategy over the past four years has resulted in the cancellation rate dropping further in 1996 to 11%

Continuous improvement

BSkyB is the leader in a dynamic, expanding industry and constantly strives to achieve innovation and improvement. New initiatives in recent times include:

• The creation of new customer benefits such as a credit card and financial services.
• The development of a new sophisticated marketing database of customers.
• The creation of a customer profile database. This involved distributing a customer questionnaire to all subscribers, in order to create the most sophisticated profile possible, which enabled the company to target customers on an individual basis – thus creating a strong bond of relationship marketing.

This study shows how an innovative company, which has been instrumental in changing the lifestyles of many people, has engaged in a sophisticated marketing strategy, in order to maximise benefits to its customers. BSkyB has gone much further than simply providing the service customers want. It has gone out of its way to create a personalised relationship with its customers, to encourage them to state their individual preferences and requirements. The case study is a classic in relationship marketing and successfully making sure that “the big ideas” – i.e. the strategies, are converted into effective operational activities. This success story will help BSkyB to steer its way into a future which will see many changes and provide many more exciting opportunities.

The introduction of digital technology presents a major opportunity for BSkyB. Digital broadcasting offers greatly enhanced channel capacity and the ability to introduce new features such as pay per view and interactive services, which include home banking and shopping. BSkyB is well advanced in its plans for digital services in the UK and has designed its own electronic programme guide. This electronic programme guide will provide programme listings and information on the television screen. The company is also in discussions with a number of interactive service providers. In 1996, the company acquired transponders on a new Astra satellite, which will provide the platform for a UK digital service to be launched in 1997.