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Current as of 23/09/14 04:20PM NZST

John Drinnan

Media writer for the New Zealand Herald

Sky TV on warning to look at innovating

Chief executive John Fellett says online activity will help to boost the company's subscriber base. Photo / APN
Chief executive John Fellett says online activity will help to boost the company's subscriber base. Photo / APN

Sky Network Television has delivered another solid profit in its financial results for the year to June 30, but there are warnings that the golden weather may not last.

New and prospective online competitors such as Coliseum Sports could eat into Sky's formidable hold on content.

But they are only just emerging, allowing Sky TV to keep the handbrake on costly innovation. But the 2013 result may be the last where it can avoid these extra costs of dealing with the threat from new services on the internet.

Yesterday, Sky reported a 10.9 per cent rise in annual profit as its subscriber base rose to a record number, and despite $5 million to increase its share of the Igloo joint venture with TVNZ from 51 per cent to 66 per cent.

The pay-TV operator reported net profit after tax of $137.2 million in the year to June 30, up from $123.7 million in the previous year, and exceeding the First NZ Capital forecast of $133.2 million. Earnings before interest, tax, depreciation and amortisation increased by 5.1 per cent to $353 million.

Sky chief executive John Fellet would like it to have been better. "It was low key - we want more subscribers and more top line growth," Fellet said.

Greg Main of First NZ Capital and Rob Mercer of Forsyth Barr were both positive about the result.

However, Main said that new internet video-on-demand services were a risk for Sky's business model of linear channels rather than individual programme downloads or streaming.

"The internet is a clear and present threat to an incumbent like Sky."

Forsyth Barr's Mercer said that the potential revenue from online services was overestimated and that Sky TV is handling the transition well.

The company is in expansion mode with Olympics rights and is even talking about boosting news and current affairs on its free-to-air channel Prime. Perhaps for the first time in 20 years it is embarking on a big marketing rebranding to improve its profile with consumers.

Coverage of the summer Olympics in London in August 2012 was the company's biggest programming initiative and boosted viewership but had high production costs and less-than-expected advertising revenue, the company said.

Sky is paying a final dividend of 12c a share, up from 11c last year and taking total dividends to 24c a share, up from 22c last year.

The final dividend is payable on September 13.

Total revenue increased by 5 per cent to $885 million as the company added 8967 subscribers compared to the previous year, giving it a record 855,898 subscribers.

Average revenue per subscriber per month increased by 5.4 per cent to $75.83 from $71.93 last year.

The company has 822,545 residential digital subscribers and 33,353 commercial and other subscribers.

Satellite-delivered services are central to the company's assessment of success, but some in the industry believe the future for pay television is online and on the internet.

Fellet said that online activity would help to boost the subscriber base and that revenue growth would be based on linear services rather than downloads.

However, the company wanted to be involved with new players providing content for services on ultra-fast broadband.

"We still like subscription video-on-demand. We would like to launch there."

There were good prospects for spreading access to its online service i-Sky so it was available for other hardware, such as iPads.

Critics argue that, due to the absence of regulation, Sky dominance over content restricts competition.

A 16-month-old Commerce Commission inquiry due to be completed soon is looking at Sky's contractual arrangements for selling its vast array of content to players such as telcos and internet service providers.

Fellet confirmed that, even before the findings, deals with telcos were under scrutiny and had been renegotiated.

He rejected a suggestion that Sky restricted new players from buying content, or that the terms of new contracts would harm revenue.

"The idea that Sky contracts were straight-jackets is terribly wrong and misleading."

Technology commentator Peter Griffin said it was true that Sky continued to dominate pay television and that it has benefited from the lack of competition. But the golden days would turn into a twilight unless Sky moved on to the internet, Griffin said.

"In the next couple of years you will see Sky TV get serious about it," he said. "Sky have always been slow on innovation."

There had been no incentive to invest money online but the subscription video-on-demand service Coliseum had taken away rights to the English Premier League so it was "nipping around their patch", he said.

- NZ Herald

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