The lesson: Believe in better

Today, Sky’s success at singlehandedly creating a whole new market is undisputed. The rise from a loss-making broadcaster into a multi-billion entertainment company is notable because of the many, many years of costly investments into big bets; not least because the pay-off was unclear and the time horizon was uncertain.

Sky has always been a pioneer and a rule breaker. Unlike its different groups of competitors, Sky’s vision was never bound by industry norms but informed by a focus on the viewer and an understanding of macro trends. And as we’ve already explored, Sky’s vision was shaped by an outside-in belief system that guided the leadership team to spot gaps beyond what was commonly defined as the market and gave it the confidence to take action to fill them.

Sky was successful because of one fundamental difference between it and other players across the British broadcasting landscape. While many in the industry only thought of TV with inside-out assumptions - few channels, free to air, something people sat down and watched together - Sky didn’t have the same anchored view. It was quite literally thinking outside the box about how TV could be reconfigured to give customers what they wanted - what I love to watch, when and where I want to watch it, with high production values. This is outside-in thinking.

Indeed, BBC and ITV continually missed a trick, failing to spot Sky’s potential and resisting change. For example, when Sky first launched, ITV took out disparaging full-page ads in the Financial Times showing rusty satellite dishes and the line, ‘Money for old soap.’36

In 2007, Sky adopted the strapline ‘Believe in Better,’ publicly reflecting its positioning as a media company that makes life easier for customers. This was also an overt declaration of the fundamental beliefs held within the business. Customers will pay for better TV, so if we make TV better, broadly, we will succeed commercially as well. This is part of Sky’s discourse. This is the articulation of Sky’s outside-in belief system.

Nick Green elaborates on how this underpins Sky’s internal culture:

Three beautiful words - Believe in Better. It means you are constantly searching and always restless. Always looking for the next new thing.

It is about the restless ambition to be able to do more for the customer and find better ways of doing stuff. The belief system is just there, it’s palpable. It’s in the water system. And the clues are there in the speed of transactions, in the style of leadership, in stuff on the walls. It is liberating because it enables constant challenge of the status quo, meaning there are very few sacred cows.37

This outside-in perspective is reflected in ambitions for growth. When Sky sees 60% of UK customers paying for TV, they also see 40% more to go for. Some will never want it, but there is clearly still much to play for, including selling more to existing customers by improving the offer, and looking to new international markets like Italy and Germany.

In November 2014, following the £6.88 billion buyout of its sister companies Sky Deutschland and Sky Italia in Germany and Italy, BSkyB reverted to its original name, Sky. Ditching the words ‘British’ and ‘broadcasting’ from its business after almost 25 years was an apt reflection of the company’s evolution beyond TV into an international multimedia content company.

We’ve highlighted a number of these big bets throughout Sky’s history, but it is useful to recognise the way the bets are taken, which is with a degree of balance. The business is an enthusiastic user of data, and its control of the end-to-end customer experience means it has a great deal to use. It tests and researches extensively, subjecting its insights to serious interrogation. Then the CEO decides. Indeed, because of the track record and the ultimate Murdoch owners, you are more likely to lose your job as the CEO if you are not bold enough, rather than if you are too bold. Feedback from patriarch Rupert is always ‘go bigger, go faster, add more.’

Sky’s culture is crucial. Akin to Jeff Bezos’ continual reminders that Amazon must always stay as it was on day one - not resting on its laurels, keeping on driving forward with the energy and vision of a start-up - Sky is determined to keep alive the spirit of its beginnings as a scrappy upstart in a ‘car park near Heathrow.’38 Like many successful start-ups, Sky worries about complacency. It consciously nourishes its ‘burningness,’ the restless ambition that lies behind the way it thinks and behaves.

It works hard to woo investors in a way that is consistent with the belief system. Financial briefings always begin with customer metrics first around churn and average revenue per user (ARPU).

Its approach was aided by its ownership structure. Since Sky’s flotation, it was owned 39% by Fox and 61% free float, which offered the sweet spot of public and private. Fox was large and supportive - and Sky was immune from takeover speculation other than from Fox. The free float meant there was also a focus on this specific business, a singular view on what was best for Sky and no danger of getting lost in the wider Murdoch group. The balance meant that investors’ expectations were managed because it was clear the view was long term, including when that came at a cost in the short term.

So far, Sky has got it right. This was previously helped by having a supportive investor and owner in Fox and Murdoch. However, since September 2018, the company has been owned by US media firm Comcast, following Fox’s sale of all of its shareholding. As we write, it’s too early to say how this new ownership might impact strategy.

Moreover, despite success, Sky keeps having to make big bets, and some of them are getting bigger, not least the cost of UK Premier League TV rights, inflated by BT’s ambition. Sky’s success has been aided by the fact it operates in a growing market, so everyone wins to a degree. In contrast, Tesco, our story from Chapter 1, was in a mature sector where competition was defined by share, with winners and losers balancing out.

Sky’s history is characterised by making big long-term bets - fundamental changes in direction, proactively creating significant new customer value and leading the market. Usually there are no precedents, something that comes with genuine leadership. The original launch was a gigantic bet that involved outsmarting regulators. Going digital was huge. It tore up the established analogue business at significant cost at a time when the whole enterprise was not yet especially big or valuable. As scale has grown, the bets have still been large, but smaller compared to the scale of the business. Their track record helps the belief that each bet will succeed. Indeed, the £30 billion Comcast paid for Sky in 2018 made it the most valuable UK company to be sold in the past 30 years.

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