In October, 2021 Comcast and Sky announced “Sky Glass,” a package including a Sky-branded smart TV, Sky Stream (a streaming satellite TV service) and aggregated CTV apps. Colin was in London this past week attending a conference at which Sky executives spoke - but revealed little information about how Sky Glass is doing.

On this week’s podcast we dive deeply into the Sky Glass model, in which Sky customers either purchase upfront or in 48 monthly installments a smart TV (3 sizes available, 43-inches, 55-inches or 65-inches), then subscribe to a Sky Stream package, and also gain access to built-in apps from third-parties.

Sky Glass immediately intrigued me because it seemed to align with a concept I had been noodling around for the prior 6-9 months: the idea of TV OEMs either giving away smart TVs and/or pricing them so ridiculously low that consumers would be compelled to take the offer.

With each CTV advertising conference I hosted, it was becoming more and more apparent that CTV advertising would continue to boom simply because of linear’s demise and advertisers’ imperative to continue achieving their reach/frequency goals (I have referred to this as the “follow the eyeballs” rocket fuel that has powered CTV’s rise in the past 5 years). That’s all before discussing the targeting, optimization, interactivity and dynamic creative benefits of CTV.

More exciting to me was that it was beginning to become apparent that in the long-term CTV’s success would evolve beyond “follow the eyeballs” to a lower and/or full funnel medium, allowing it to emulate the massively successful playbook that has been run by search and social. Given the choice between selling smart TVs at negative gross margins, or simply giving them away to consumers, with some guaranteed monetization hooks in both high-margin CTV advertising and SVOD/MVPD services, the choice to me seemed relatively straightforward, particularly for certain TV OEMs.

I envisioned a third-party startup in the middle of the action (I subsequently discarded the idea for various reasons).

Loosely speaking, this is a version of Gillette’s famous “razor and blades” strategy which has been widely copied in other industries (think printers and cartridges). In this case, “give away” the smart TVs and make it up and more on the services side. The “give away” doesn’t even need to be a total freebie, because fortunately for CTVs, their bulkiness requires delivery (and charges for doing so), set up (those pesky home theaters are never, ever plug-and-play), and often an older, existing TV (that requires disposal). In short, there are a host of upfront fees the provider could charge, likely more than offsetting the freebie TV.

When I read the Comcast/Sky press release in ’21 my first thought was “good for them, they’ve also figured out this opportunity - hooray.”

Unfortunately, Sky’s pricing for Sky Glass shows they have not. Because, rather than giving away the TVs, they have inexplicably chosen to charge (either upfront or via the 48-monthly installments) somewhere between 2 1/2 to 3 times what a similar smart TV would cost a consumer to buy online. In the world we now live in, with pricing transparency a few clicks away, consumers will immediately understand this is a lousy deal and move on.

(In my view it’s actually more than a lousy deal; it’s the kind of move that tarnishes brands’ reputations because savvy consumers lose trust in a brand when they see these types of “fool-me” offers).

To aggravate matters, the Sky Stream satellite streaming service is offered for the same price as the satellite service. Even though it’s clearly beneficial, for many reasons, for Sky to migrate existing and new subscribers away from satellite and to IP delivery, Sky doesn’t aggressively price Sky Stream relative to satellite - they both cost around $60 per month.

Colin and I explore all of this in the podcast. Colin highlights there are some similarities to the mobile phone market, where Apple and Google in particular have trained users to pay a premium for new models. But, as we discuss, those companies have rare - and extremely valuable - ecosystem and lock-in dynamics at work, which, on the surface Sky neither seems to enjoy nor even necessarily have “permission” from its subscribers to pursue. That doesn’t mean a bona fide razor and blades strategy for Sky Glass isn’t a worthwhile pursuit, which it is, but, at a minimum, for it to succeed it has to adhere to the rules of the game.

The fact that it doesn’t is yet another mystery to me in the whole Comcast-Sky drama. Comcast paid $39+ billion for Sky, yet never really articulated why it was doing so. The business has steadily declined since, highlighting how misguided the deal was in the first place (a video provider without a robust broadband product...really, what am I missing here?).

But that’s not all. As I wrote at length back in 2018 and 2020, here and here, what Comcast really should have done is acquire Hulu, if Disney would have acquiesced. For between $13-15 billion, a fraction of Sky’s cost, Comcast could have bought the Hulu shares it didn’t already own and become an overnight leader in streaming.

Hulu also would have been a fantastic foundation for Peacock, though with the Hulu brand now fully owned, the need for NBCUniversal to even launch Peacock would have probably been rendered moot. Fast forward to today and we know that Peacock is on its way to losing a staggering $5.5 billion between 2022-2023 as it struggles to catch up to Netflix and others (yes, Alice, unfortunately there are real costs to showing up dead last to a party and then completely switching your strategy from "Free" to "Paid" in a blink of an eye).

Sky is an albatross for a half-committed Comcast that seems to be belatedly flirting with the idea of buying Hulu from Disney. Cord-cutting rages. The biggest RSN group just declared bankruptcy. ESPN layoffs loom in the coming weeks. WBD’s future is anyone’s best guess.

As this all unfolds, you can find me in the cheap seats, pondering how CEO compensation in the media industry routinely runs into the tens or even hundreds of millions of dollars per year. I’ll be easy to spot; I’m the one running basic Excel spreadsheets and compulsively scratching my head.

Listen to the podcast to learn more! (37 minutes, 19 seconds)

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