Sky not quite out of the Woods

Between The Lines

By Keith Newman

Sky TV's purchase of a stake in Ihug, one of the country's foremost Internet service providers, takes out a potential competitor and makes its own digital network more attractive.

Digital TV will transform viewing from a passive to an active experience, with Sky intending to offer home shopping, banking and on-line services over the TV using a remote control and set-top box.

Yet for all the global resources of Rupert Murdoch's empire backing it, Sky found itself challenged by the entrepreneurial Wood family of Auckland. Its company, Ihug, has pretty much the same idea but is using a combination of Internet technology and satellite broadcasting to deliver it.

Ihug has combined intellectual property, innovation, smart software development and brilliant marketing to crack open a niche for personal computer and TV-based services.

Ihug provides network access to 100 Internet service providers in Australia and the Pacific Islands. Its Internet service is at least 10 times faster than a normal modem link and it has over 5000 customers using its Internet telephone service.

The company is writing its own software for Web browsing, e-mail and on-line services. It is about to become the first customer in the world for leading-edge Korean-made set-top boxes and PC technology for its digital pay TV network due for launch in July.

Sky began broadcasting satellite-based digital television in November and now has 44,000 subscribers with access to 20 channels. TVNZ and the other free-to-air channels are also contemplating their transition to digital TV over the next five years knowing that they need the revenues from pay TV and on-demand services.

For Sky, a 30 per cent share in Ihug is the first of many initiatives relating to inter-activity which it is keenly pursuing. However, its ownership may present some dilemmas. TVNZ is determined to go digital but it is up against Sky as its major competitor despite being a 12.9 per cent shareholder in Sky. The two can't even agree on a common set-top box.

Now Ihug is in the Sky fold with its own digital TV network and conflicting set-top technology. Customers will be severely annoyed by the incompatible systems and multiple set-top decoders.

Until Sky at least sorts out its incompatibility with Ihug, it will fall short of its ideal product mix of high quality pictures, 30 channels of pay TV, fast Internet access, telephone and interactive services. All that for under, say, $100 a month would make potential customers sit up and take notice.

Meanwhile, it will have to make do with cross-marketing the separate services by offering discount rates for Internet access while Ihug offers deals on Sky.