Sky High On 3D


Over the last two years, what may be the world’s largest effort to create three-dimensional TV programming has emerged in the United Kingdom, where pay TV giant British Sky Broadcasting has produced dozens of events in 3D. Last month (April 3), BSkyB became the first multichannel provider outside of Japan to launch a 3D channel, Sky 3D.

That channel, which now
reaches more than 1,000 pubs and
clubs in the United Kingdom with
a potential audience of more than
100,000 for high-profile soccer
matches, has made News Corp.-
controlled Sky a crucial test case
in the emergence of 3D technologies.
Its efforts offer important
lessons in both business models
and emerging production techniques
for 3D that a number of
U.S. programmers and multichannel
providers have been watching
closely as they develop their own
3D offering, according to programmers
and equipment vendors.

“We immediately saw that we
had a viable business with 3D,” and
could move quickly,” BSkyB’s director
of product design and TV product
development Brian Lenz said.
“We’re uniquely positioned because
we are vertically integrated,” with
both a satellite platform and highprofi
le sports and movie rights.

Sky executives had assiduously
followed the growing popularity
of 3D in cinemas, but suddenly
got serious about 3DTV at the
National Association of Broadcasters
show in 2008. There,
officials saw a 3DTV demo produced
by 3ality Digital Systems
that beamed a live game show in
3D via satellite from Los Angeles
to Las Vegas.


“Up until then, the presumption
with 3D had always been that it was
four or five years down the road and
that we could only be able to broadcast
it into the home if we invested
in new set-top boxes and a brand
new infrastructure,” Lenz said.
Such spending would have been
difficult to justify after the directto-
home satellite firm’s massive investments
to upgrade to HD.

“All of a sudden, we realized that
broadcasting 3D content would
work,” said Lenz. “We could do it
over satellite,” as well as by using
the existing HD infrastructure.

So, Sky officials embarked on
an intensive period of testing
“with just about everybody in the
world with 3D gear,” 3ality Digital
CEO Steve Schklair said. The provider
produced content ranging
from boxing and soccer to rugby,
ballet, tennis and concerts.

“One of the greatest lessons that
can be learned from Sky is that
they’ve tested it and training and
learned about 3D, not just technically
but creatively until they felt
they were ready to launch,” he said.

Sky has also worked closely
with programmers. “We talk to
them once a week at least,” ESPN
vice president of emerging technology
Anthony Bailey said. “They
are far ahead on this, like us.”

Last fall, Sky commissioned a
3D truck from Telegenic that was
built by Sony Professional Europe
with 3ality camera rigs. During
the last six months, the satellite
firm has produced one and sometimes
two 3D events per week in
preparation for the launch of the
all-3D service. Initially available
only in pubs and clubs, Sky 3D
will be launched to residential
customers next fall.

“Sky has been a real catalyst”
for the development of 3D technologies,
said David Mercer, vice
president and principal analyst,
digital consumer practice at
Strategy Analytics.

In many ways, Sky’s recent
push into 3D is just the latest in
a series of technical innovations
that have helped the company
dominate the U.K. pay TV market,
with about 9.8 million customers.
Its next biggest competitor, cable
operator Virgin Media, has about
4 million total subscribers.

“Sky’s income trajectory over
a very long period of time has
always been driven by almost
entirely by organic growth and innovation,”
Claire Enders, founder
of Enders Analysis, said. She listed
Sky’s huge investments in premium
sports rights, digital TV, DVRs, high-speed Internet, telephony
and most recently high definition television as examples
of how the company has consistently
used new technologies to
drive subscriber growth.

For example, Sky invested
£130 million [$201 million]
in HD during its 2008-09
fiscal year, mostly to subsidize
HD set-top boxes. That helped
Sky’s HD subscriber rolls swell
from from 422,000 at the end of
2007 to nearly 2,082,000 at the
end of 2009, according to data
collected by Enders.

“Sky does everything for the
very long term,” and will work
patiently to develop its offering,
Enders said. “Th ey’ll see 3D as very
successful if they get 5% or 10% of
their subscriber base in the next
two to five years, and we expect
them to do better than that.”

Continuing this innovation
with 3D will also strengthen Sky’s
brand as an innovator. But the
company’s approach to 3D is designed
to have a more immediate
payback by boosting revenues per
subscriber and convincing existing
customers to buy higher-priced
tiers, an approach that offers
some key lessons to multichannel

decision to initially
launch in pubs and clubs is “a
brilliant move,” said 3ality Digital’s
Schklair, “because it provides
a venue for 3D broadcasts
at a time when there aren’t many
sets in homes, it allows Sky to start
marketing the technology for the
launch of their residential channel
and it lets Sky immediately
start getting some revenues from
the owners of those venues.”

BSkyB’s Lenz noted that finding
revenues from such venues as cinemas
or pubs could yield pay TV
operators a new business model
for 3DTV. “It builds awareness and
provides a pretty compelling approach
to help the investment pay
for itself a lot earlier,” he said.

The fee structure is also designed
to encourage first
pubs and then consumers
to upgrade to the most expensive
tiers. Currently, Sky currently
off ers the 3D channel for free to
any pub or commercial venue
that already takes its highest
movies and sports package. It
plans to use the same approach
when it launches a residential
channel this fall, Lenz said.

That means the residential subscribers
to the Sky World and HD
services who currently pay £58.50
[$90.40] a month will get 3D for
free. Sky has not announced 3D
pricing other subscribers.

“It provides a commercial
thrust to provide upsell to the top
tier,” noted Enders analyst Toby
Syfret, something Sky has done
consistently well in recent years.
TV ARPU hit £434 [$671] per year at
the end of 2009, up from £398 [$615]
at the end of 2007, according to estimates
from Enders Analysis.

That won’t happen, though, unless
consumers embrace the technology.
Early set sales have been
brisk and a March 2010 study
from Insight Media predicted
that some 3.3 million 3D sets will
be sold worldwide this year, with
those numbers growing to nearly
50 million by 2015.

Impressive projections for 3D
set sales may not translate into
a 3D boom, analysts cautioned.
“We’re in a dangerous zone right
how at the peak of industry interest,
when everyone is jumping
on the bandwagon,” Strategy
Analytics’ Mercer said. “There are
still many questions about 3D in
terms of consumer acceptance of
displays and glasses. Our view is
majority of programming will be
2D for quite a long time to come.”

Media Insight analyst and editor
Dale Maunu also cautioned
that “so far the push to move 3D
into the home is more of a push
by television makers than a pull
by consumers” — in part because
of a lack of content.

To overcome that problem,
Sky hopes to leverage its rights
to popular sports events and theatrical
films, Lenz said. “We own
sports channels and the movies
channels and we have a platform
to put on the channels. So the difficult
issues in the U.S. of channels
and platforms having to fight
to get content didn’t apply to us.
We’ve got the content and we can
move quickly.”

Even so, Sky executives quickly
realized they would have a
problem getting 3D sets to potential
customers. New consumer-
electronics devices tend to be
launched first in Asia and the
U.S.; the first 3D sets only went on
sale in the U.K. during the week of
April 19, nearly three weeks after
Sky 3D launched in pubs.

To overcome the lack of 3D sets,
BSkyB worked with consumer
electronics manufacturer LG and
a local reseller to supply the pubs
with reasonably priced sets. Th e
LG TVs also use inexpensive passive
3D glasses that cost around
$1, so pub owners won’t be on the
hook for the shutter glasses used
by many other 3DTVs, which can
cost as much as $150 a piece.

While the promotion strategy
has gotten off to a good start,
analysts said, the company still
faces a number of additional
longer-term problems, including
the cost of 3D production.

BSkyB has been using separate
crews to produce two-dimensional
and 3D versions of its live sporting
events, a practice Lenz expects it
to continue for a while, given the
different camera angles and editing
techniques required.

But the launch of 3D has
not required a massive
upgrade or major capital
investment in Sky’s overall infrastructure,
he said. About 90%
of the production infrastructure
is the same as HD, said Lenz,
and 3D cameras are the largest
incremental expense.

Even better, Sky 3D’s signal can
be delivered into the home just
like a normal HD channel, where
it can be viewed by anyone who
owns a 3D set and has one of the
Sky Plus HD set-top boxes. “We
haven’t had to do anything different
from what we would do to
launch an HD channel on an HD
transponder,” Lenz said.

That will also allow Sky to market
the service to a large base of
existing customers. There were
2.5 million Sky Plus HD subscribers
at the end of the first quarter
of 2010.

Sky’s costs will drop as they
learn to share crew members for
the 2D and 3D production.

The competitive lessons from
Sky’s experience are more murky,
though. Sky’s aggressive push
into 3D will give it another leg
up on cable MSO Virgin Media,
which has expressed interest in
3D but doesn’t own the kind of
premium sports and movies as
does Sky .

Other satellite operators are
hoping for similar gains. In addition
to BS 11 in Japan, which
launched the world’s first 3D services
in December of 2007, satellite
providers DirecTV in the U.S.,
Canal Plus in France, Canal Plus
Spain and SkyLife in Korea have
all announced plans to launch 3D
services this year.

“There has been a regular stream
of 3D announcements,” Mercer of
Strategic Analytics said. “Pay TV
providers are the ones likely to lead
this because they have the right to
the sort of content that people want
to watch in 3D.”