Tesco, the UK’s biggest retailer, has turned its attention to television and will be going up against media giants such as BSkyB, NTL:Telewest and BT with its latest venture. Despite being a new entrant to the paid-TV arena, experts believe the supermarket chain’s gamble will pay off and could pose a threat to traditional television service providers.
Tesco has entered the television market via a tie-up with TV-over-broadband company Homechoice, using a Tesco-branded Homechoice set-top box and offering customers a package including broadband connection, free weekend calls and about 35 digital TV channels.
PHD executive planning director Mark Holden says: “Tesco is trying to own not just the high street but the home as well. This is something the industry will be watching very carefully and the likes of Sky should be anxious about it.”
Holden believes Tesco has the means to grow a substantial business very quickly, perhaps by offering customers incentives to take up pay TV, and says its existing customer data, through its Clubcard, gives it a huge advantage.
Neil Saunders, consulting director at Verdict Research, thinks Tesco is well placed to enter the TV space, citing the supermarket’s success at diversifying outside its grocery heartland.
In 2003, Tesco Mobile was launched as a joint venture with O2 and now has more than 1 million customers. The company announced that it had a total of more than 1.5 million telecom accounts in April this year, including mobile, fixed line and broadband VoIP (Voice over Internet Protocol) accounts.
Joint venture It should also be remembered that Tesco Personal Finance, while not the first partnership between a supermarket and a bank, is the UK’s largest. It was formed in July 1997 as a joint venture with Royal Bank of Scotland following the successful launch of Sainsbury’s Bank earlier that year and now has more than 1 million customers despite analysts warning that such partnerships would fail.
Saunders says of Tesco: “What is it going to do next? “It is getting into everything and anything but whatever they touch they seem to do very well at. It is a logical move for Tesco, which has a very active customer base and a lot of footfall.”
He says internet protocol television (IPTV) is a growing area and of interest to a number of brands because of the forthcoming switch from analogue television signals to digital that is due for completion by 2012.
“By acting now Tesco is putting itself in a position to really sell it to people and get them interested at an early stage,” he adds. “Tesco is a known name, people feel comfortable with it and they know what it stands for.”
Following suit Saunders believes rival supermarkets and mobile operators will look at following suit, although retailers such as Boots and Woolworths would find it difficult because they lack the high footfall and “active interest” of supermarket shoppers.
France Telecom announced the launch of Orange TV earlier this summer and BT is also launching a hybrid digital TV service later this year, called BT Vision.
But Holden points out: “Very few companies will have the ambition, the deep pockets for investment and the customer relationships to make this move.”
Yet Tesco, he says, should not take success for granted: “With the emergence of ‘Tescopoly’, there is a danger that it is launching something at about the time that there is a collective cultural shift away from the Tesco brand.”
A Tesco spokeswoman says there are no plans to roll out the service yet. “Everything could change or it could disappear into nothing,” she adds.
However, she concedes: “It is a really interesting market and we have got a track record of launching accessible, easy-to-use services at a good price.”