Sky's Decision to Lease Channels

Sky's decision to lease channels rather than purchase a satellite resulted in an annual cost of Ј10 million, in contrast to an annual Ј50 million depreciation charge borne by BSB. As compared with the delayed April 1990 introduction of BSB, Sky has a crucial head start in gaining critical mass for technology standardization. BSB should choose to fight instead of exit, aiming to capture 64% of the market by 1993. However, in order to gain a positive NPV, as opposed to the current negative amount of Ј474. Instead of purchasing satellites, Sky leased several channels at Ј10 million per year from a medium-powered satellite using an older PAL technology that would broadcast across Europe. Sky promoted its service heavily, and by October 1990 had installed 946,000 dishes. The market game given these strategies is detrimental to both BSB and Sky as each chooses to compete, resulting in significant losses unless a new strategy is implemented. Given that brands are built over time, both BSB and Sky are focusing their strategies on generating consumer awareness while edging out the competition through increased advertising and promotions. Since the satellite is already a sunk cost they should not try to switch gears and cooperate with Sky Television's PAL system. As shown in Exhibit 4, BSB has quickly seized 16% of the market after only 7 months and its install rate is growing at an average of 50% from month to month. This implies that BSB, in order to gain a profitable stance in the fight for market share and technology standardization, must apply a new business strategy for cost containment and operating structure. This notion has already been illustrated in the higher rate of adoption experienced by BSB compared to Sky for the differing technology standards, a trend that would be expected to be even greater under the new strategy. The firm was able to produce programs more cheaply (and quickly) than BSB.

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