BSkyB's strategy going forward is centred around its HD box and an IP connection. The VoD service due to launch later this year will be a key headliner for that strategy but the wider picture will be about using the technology to achieve long-held ambitions to take Sky multi-platform, gaining a pay position on DTT and IPTV. Sky has already made strong progress with placing the Sky Player and offering a linear-channel subscription on multiple devices including Microsoft's X-Box and Windows Media Centre, hybrid TV sets and hybrid DTT/IP set-top boxes like Fetch TV. Although the recent Ofcom ruling on wholesale pricing for Sky's premium sport channels also opened the door for Sky to launch a pay DTT service, a hybrid-based service now seems the only logical route for Sky to take.
Rather than use its DTT spectrum currently allocated for free channels to launch a pay service, as suggested in the original plans for Picnic, hybrid technology allows Sky to operate a pay operation over an IPTV channel and bundle it into a Freeview DTT box and other devices. Any such service would be further boosted by VoD-like access to movies and other content. By not launching a pay service on DTT, Sky also limits competitor access to the Sky premium channels to hybrid-capable competitors rather than opening up the linear DTT channel as an option which would likely also carry additional spectrum costs.

Although a focus on HD and advanced TV services remains core, Sky is also taking the opportunity to attack rival Virgin Media with a new strategy for broadband. Virgin's recent run of success has been driven by fast broadband with a headline 50MBit/s service that the cable company says will be boosted to 100Mbit/s by year end. Sky will launch in June a new base broadband speed offering 20Mbit/s to all on-net subscribers. Free broadband will still be offered to Sky Talk customers and a £7.50 a month unlimited package will undercut Virgin's pricing significantly.

We believe these developments will continue to drive BSkyB's subscriber growth and ARPU strongly with only limited impact on direct costs and benefits reflected in boosted ARPU which should easily reach £550-plus by year end. The Sky HD platform, which has the benefit of falling outside the Ofcom wholesale ruling, has a real opportunity to achieve what so many have failed to do in the past in becoming a multi-connected home media entertainment hub. Such a goal must be seen as the ultimate end game in Sky's wider strategy.