Free spirit Airey to shape Sky's future

trademark black. But the Sky PR minder is having none of it. We are
ushered away to another poster for the Wizard of Oz, featuring a
cherubic Judy Garland. The incident is illustrative. Since joining Sky
the outspoken Airey who, once notoriously and Ratner-esque, described
her TV output at Five as the 3fs - films, fucking and football - has
been atypically reserved, constrained in a corporate straitjacket.

Where Sky is all buttoned down, obsessed by how any public utterance is
measured by the City, Airey is a free spirit, an extroverted showman.
Raised in Preston of Liverpudlian parents, she laughingly accepts the
tag of "gobby northerner." She also has oodles of northern warmth and
fusses over whether I have had any lunch, wanting to order me
sandwiches.

Although denying that Sky is buttoned down, Airey admits she has had to
adapt her persona to match Sky's PR agenda and that the first year was
difficult. Yet that may have more to do with a reportedly frosty
relationship with her old boss, Tony Ball, who hired her.

"The popular caricature of me is right on one level, but when you work
for a FTSE-100 company, you have to be more cognisant of what you say.
At Five it was different. We had to create a personality and a brand
that could challenge, and that task coincided with the personalities of
some of the individuals there. But we don't have a poker up our arse at
Sky and you will see that under James' (Murdoch) leadership; we are
becoming far more open and more willing to talk to people. Good grief,
I'm talking to you!"

You get the sense that 45-year-old Airey, having taken on an expanded
role in January - adding multiplatform responsibilities for interactive
TV, online and mobile phones to her management of all non-sports
programming and advertising revenues - is bursting to raise her external
profile again.

Crucial services

Aside from running a £900m programming budget and £329m of
ad revenue, she now oversees the rollout of broadband, video-on-demand,
mobile and HDTV services, made easier through Sky's £211m Easynet
acquisition. In short, she has Sky's very future in her hands.

While generating welcome new sources of revenue, these services are also
expected to be crucial in attracting and retaining TV subscribers in
meeting a highly publicised target of 10 million by 2010. Allowing for
the churn of lapsed subscribers, this will require the recruitment of
some six million new customers. Surely, you think, a daunting prospect
in the face of competition from the faster growing Freeview platform,
along with as yet unknown threats from a rejuvenated NTL/Virgin and the
launch of broadband TV services from BT.

Airey is undaunted by the scepticism; she's clearly well practised in
addressing it and launches into corporate-speak. "We will meet (the
target) in the same way we have achieved others in the timescale we said
we would, by continuing to offer fantastic content, a huge amount of
connectivity through mobile and broadband offerings and first class
customer service. There's nothing to suggest that we won't hit the 10
million with ease. If we thought we couldn't achieve it we would have to
tell the City now, because we'd go to jail otherwise."

A robust defence indeed, and there are ways that Sky could ease its
task. It could offer cheaper subscriber packages, perhaps even enticing
customers in for free by aggressively using Sky Freesat as a counter to
Freeview in the run up to digital switchover. The damage to its average
revenue per user, once Sky's most vital performance statistic, might be
a price worth paying. Yet Airey is unconvinced by the potential of the
tactic. "We prefer people to pay and Freesat customers are going to be
damn hard to convert into pay TV."

Challenging targets

Nevertheless, she seems to hold up more hope of getting pay-TV converts
over the longer term.

"One would hope that Freesat and Freeview customers, in time, will see
it is an interim choice, and if you want HDTV and the full range of
niche TV content, they will have to migrate to a pay-TV platform."

Whether such organic migration will occur in time to help the 2010
target - digital switchover doesn't happen until 2012 - remains a
question.

Guy Di Piazza, director of technology, communications and entertainment
at Ernst & Young, says the definition of what constitutes a subscriber
will be crucial in measuring Sky's achievement of its goal.

He adds: "In presentations to analysts, Sky hasn't defined this. It's
going to be a challenge to hit the target. Young marrieds are the most
likely new customers, but there are only around 300,000 of these a year.
So Sky may have to employ a looser definition of a subscriber."

Currently, video-on-demand is a free service to Sky subscribers, but
that may change in the future. Will these customers be counted as
subscribers? Then there are multi-room subscriptions to a second digital
box in the same household. Currently there are one million of these -
12% of the total of 8.1 million subscribers - but Sky expects 30% to be
multi-room customers by 2010.

Of course, providing must-watch content to people who have failed to be
enticed by Sky's USPs of films and football will be crucial in
converting pay-TV refuseniks. Recently Sky has been promoting the
breadth of its niche programming in areas such as nature, the arts and
travel. This may add viewers at the margin, but to attract the masses,
some believe it needs a stronger general entertainment proposition than
currently offered by Sky One, Two and Three.

Airey's first task on joining Sky was to revitalise Sky One. Her initial
ambition was to turn it into a mainstream entertainment channel to rival
the terrestrial networks. That hasn't happened - a budget thought to be
around £100m was never going to be enough - but she has succeeded
in improving the channel's once tawdry Ibiza Uncovered image, appealing
to more up-market viewers with award-winning drama like Deadwood. Yet
the schedule - once witheringly described by Airey herself as the 3 s's:
"Simpsons, sci-fi and shagging" - may have ditched the latter, but is
still rather dominated by the former two.

The success of ITV2 has seen Sky One challenged as the pre-eminent
entertainment multi-channel and the growth of Freeview homes - Sky One
doesn't air on Freeview - will likely see ITV2 soon overtake it. At
present, its audience is holding up. Commercial impacts among 16 to
34-year-olds were up 5% (8% among females) on last year in the first
five months of 2006.

Airey is more concerned by the quality, rather than the number of
eyeballs viewing her channel, and their contribution to subscription
revenue. "Sky One is the key commercial driver of our entertainment
package. If you've got Pop Idol, Celebrity Love Island and extensions to
Coronation Street and you throw them onto ITV2, then fine, but that is a
different model. I'd much rather have a subscription model for my income
than an ad revenue model, particularly in the current environment."

Airey warms to her theme: "Whatever bollocks Simon Shaps (ITV's director
of television) may have told you, look at the data of Sky One versus
ITV2 and you'll see we're ahead of them on all the metrics. There's so
much rubbish written and I don't want you to add to the cumulative crap
that's written about Sky One."

Another key plank of Airey's programming remit is Sky Movies, which
faces a new Freeview threat with the free-to-air debut of Film Four and
the launch this autumn of two Five digital channels airing US movies.
With so many movies available free and the advent of video-on-demand
allowing viewers to "pay as they go" rather than pay a monthly
subscription, the future of Sky Movies as a top-tier subscription
service seems shaky.

The suggestion draws a nervous titter from Airey, who is clearly aware
of the threat. "It's a legitimate question; all linear movie channels
are asking that question." She claims that no other broadcaster in the
world can match Sky's output deals with the major movie studios and Sky
can air movies earlier than rival media. She also places great store in
the Sky Movies By Broadband service which offers 300 movies for
download.

"It's an unbelievably good service and it's free to subscribers. We've
had more than a million downloads to date for films and sport, and as
the speed of bandwidth into the home grows, the demand will grow."

Airey also oversees Sky Media's advertising sales activities.
Advertising only accounts for 8% of Sky's revenues, but will it become a
growing income source? "It's important, a very nice ingredient within
the cake, but we are a subscription business. I am tasked with growing
our share, through online as well as through commercial impacts. But the
ad market is in a shocking state and I'm damn glad that we're not
advertising reliant."

She can't resist a dig at her more reliant rivals. "ITV, even with the
World Cup, is going to see its revenues fall below £100m for the
first time this month - who would have thought that? But it's not really
surprising. There are more impacts available and advertisers aren't
going to say 'Oh, because there are more impacts we'll buy them'.
They're going to buy what they have bought in the past, so there is
(price) deflation because there's over-supply."

Unsurprisingly for an advocate of Sky+, Airey is dismissive of the
threat to ad revenues from PVRs. "I read pieces in Media Week where
people are wringing their hands about the death of spot advertising
because of PVRs, but I think there is an unbelievable opportunity. We
know that PVR viewers watch more TV and the best creative will always
cut through. The 24 sponsorship bumpers for Nissan are hugely valuable
because as soon as you see them you know the show is about to start, so
you take more notice of them. And in time you will be able to push
specific commercial content through the boxes, targeted at groups of
viewers."

On product placement she is more ambivalent. "ITV has been pushing hard
to have product placement rules relaxed, but the idea that it will
provide a slew of new money is naive, since most of it would come out of
spot advertising. As a life-long fan of Coronation Street, I can see
that replacing the fictitious Newton & Ridley's beer in the Rovers'
Return with John Smith's makes sense. But if product placement becomes
so obvious, then that could be a turn-off for viewers."

Sky Media has been busily expanding its revenue earning capacity by
representing more and more independent channels that are carried on Sky
- they now account for 45% of its sales inventory. In the last six
months it has added seven channels including ESPN Classic and
Attheraces, so does it have its eye on more channels - perhaps a biggie
like Five or Flextech?

Cue another guffaw: "I'm not going to pass comment on that. But I am
always keen on having scale, and I'm always saying to Nick Milligan (Sky
Media's managing director and Five's former head of sales) go and look
for opportunities. Read into that what you like!"

Although Airey relocated from Lancashire to Devon as a child, before
going up to Cambridge (she read geography at Girton College), she
describes herself, emotionally, as a northerner: "Dead straightforward,
more front than Selfridges, friendly, open, energetic and fun, with good
taste." She's also said to be a workaholic, though she doesn't like the
term and insists she has a work-life balance.

For relaxation, she gazes at the statue of Buddha sitting on her desk,
yet she denies being a Buddhist. She works out in the gym every morning,
while watching Sky News, of course, plays tennis and collects antique
maps - she has a "pretty definitive collection of maps of the British
Isles," which grace the Oxford and Chiswick homes that she shares with
her partner, Jacquie Lawrence, Sky One's executive producer.

Airy joined Sky after turning down the ITV Networks chief executive job.
She says the pre-merged ITV job was clouded with a lack of autonomy that
she would have needed to do it. She loves to work on "challenger brands"
and, having learned all about pay-TV and multi-channel, she might now
find ITV more of a challenger brand than Sky. If ITV came courting
again, would this Coronation Street lover reject its overture a second
time?

As for a move out of TV altogether, Airey says she could envisage it,
and uses the term "entertainment in its widest forms", rather than
media, as the territory she would consider.

From such an unabashed entertainer, you wouldn't expect anything else.
Could we yet see Dawn Airey, the movie mogul?

CV

2003 Managing director, Sky Networks, promoted to MD channels and
services in 2006

1996 Director of programmes, Channel 5, promoted to chief executive in
2000

1994 Controller of arts and entertainment, Channel 4

1993 Controller of networked children's and daytime, ITV

1985 Management trainee, Central TV, promoted to director of programme
planning and joins the broadcasting board in 1989.