How Sky, Dish Network Hope to Avoid Cannibalizing Existing Customers When Launching On-Demand, Streaming TV

Service providers rightly worry about cannibalizing revenue they already earn when creating and selling “value-priced” offers. That is why “TV Everywhere,” which allows subscribers to watch some of the content they pay for as part of a linear video subscription to be watched on tablets and smartphones or PCs, is a value-add to the existing product, not a standalone offer.

Dish Network is going to be more daring, launching an online-accessed, standalone streaming video service featuring linear content and channels. So the issue is how that might affect existing customer behavior and potential downgrades to the more-affordable streaming service.

If Dish Network’s experience is similar to that of Sky, the U.K. satellite video service provider, the risk of cannibalization might be slight.

There are some caveats. Both firms are targeting a specific demographic, namely younger users who do not presently subscribe to linear TV. If the new services perform as expected, the cannibalization risk is minimal, since the new subscribers are net additions, while the offers are built in a way not especially attractive to existing consumers for the linear product.

In 2012, Sky launched “NowTV,” an Internet video service that does not require any “sell through,” where a NowTV subscriber must first be a Sky TV subscriber.

How NowTV is packaged is important. It offers on-demand video and some live TV, costing about  £8.99 ($15), as well as one-day “sports” access costing £9.99 ($17).

Though not saying precisely how much downgrade activity has occurred (Sky TV customers downgrading to NowTV), NowTV is attracting former non-customers, especially younger customers, according to Hilary Perchard, Sky  VP.

Perchard also says NowTV is not cannibalizing existing Sky customers.

The trick is to create an over-the-top service with enough value to attract the value-conscious buyer, while maintaining clear distinctiveness from the existing linear video service, to avoid cannibalization.

Dish Network plans to launch a similar  OTT service, not requiring a traditional subscription, by early 2015.

Basically, SkyNow and Dish Network, as well as others likely to follow at some point, have to create a new service compelling enough to compete with Netflix, Hulu or Amazon Prime, not traditional subscription TV.

Neither satellite provider is offering something most believe will happen, at some point, namely full ability for consumers to buy single programs or channels.

But NowTV and Dish Network’s expected efforts will move the industry in that direction.

In principle, the challenge resembles the segmentation strategy mobile providers face in mobile markets where both postpaid and prepaid segments are important. Each segment’s product has to have clear and distinct value, and a matching price and packaging approach.

For Sky and Dish Network, that task is made simpler because both are targeting a younger, non-subscriber demographic. So sports is a huge emphasis, rather than news, for example.