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Matthew Theunissen is a business reporter

Sky needs to reinvent itself: experts

Sky TV will need to change the way it operates if it wants to remain competitive following its failed attempt to merge with Vodafone, analysts say.

Investors wiped $293 million off the value of the pay-TV provider after the Commerce Commission's rejection of the proposed merger on Thursday morning.

The company also has a declining customer base, with 816,135 subscribers as at December 31, down 44,310 from the same time the previous year.

The merger would have enabled the Vodafone-Sky company to offer enticing bundles of Vodafone's internet and mobile services along with Sky TV.

But the commission found that Sky's exclusive rights to premium sports content would cause people to switch from rival telcos, thus reducing competition in telecommunications markets.

Business and technology commentator Paul Spain said Sky had the most to lose as a result of the decision, and it would need to change tack in order to stay competitive.

He suspected Sky would consider becoming an internet service provider or telco in its own right.

"Whether they would establish that directly or whether they would be looking at an acquisition such as 2Degrees," he said, adding that such an acquisition would likely not face such a strong backlash given 2Degrees' smaller market share compared with Vodafone's dominance.

At the very least, Spain said Sky needed to move away from its traditional set-top box focus and move to a fully-digitised operation that would allow customers to access its content through apps.

"It's a pretty messy offering, I would say, from Sky at the moment," he said.

Spain said he wouldn't be surprised to see some changes at the top levels of Sky's leadership team, such as chief executive John Fellet who has been in the role since 2001.

The company would also need to bring down its pricing.

Telecommunications Users Association of New Zealand chief executive Craig Young said Sky would need to find a plan B, particularly before its exclusive rights to broadcast live Super and international rugby in New Zealand expired in 2020.

"There is no guarantee that they will keep those rights," Young said. "If you look at the example of sports such as major league baseball and basketball in the United States, they're finding different ways of getting content to people rather than the traditional means of using television. So they've got this content which they've paid for which they need to leverage," he said.

"They'll certainly be needing to sit back and figure out, 'Well what is our competitive advantage going forward and how are we going to leverage what we've got?'"

Commerce Commission chair Mark Berry said the merger would likely have been allowed to go ahead had it not been for Sky's access to premium sports content.

"Given the merged entity's ability to leverage its premium live sports content, we cannot rule out the real chance that demand for its offers would attract a large number of non-
Vodafone customers," he said.

This was also against a backdrop of the fibre broadband network being rolled out, making it an opportune time for the merged entity to attract customers with new offers, Berry said.

"If significant switching occurred, the merged entity could, in time, have the ability to price less advantageously than without the merger or to reduce the quality of its service."

It is still possible the decision could be appealed to the High Court, and Vodafone said in a statement following the decision that it would "consider all courses of action".

"We are disappointed the Commerce Commission was unable to see the numerous benefits this merger brings to New Zealanders," said chief executive Russell Stanners.

Sky TV chief executive John Fellet said in a statement to the NZX that the decision was a disappointing conclusion to a merger he thought would enhance New Zealand's communications and media landscape.

"From here we will continue to strive to deliver innovative ways to curate and deliver entertainment to all of New Zealand."

- NZ Herald

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