Sky TV's shares have been sold off heavily over the past three and a half years, hitting an all-time high of $6.95 in 2014 and currently sitting at $2.65 at the time of writing.
The market is concerned with the number of households moving to alternative offerings such as Netflix.
It is worth pointing out that through 2012 and 2013 the analogue television signal was progressively switched off in New Zealand. This sent marginal buyers of Sky's services kicking and screaming into the digital world, and these buyers are now looking for a cheaper alternative.
Sky's revenue is still above where it was in 2013 and subscriber numbers are higher than where they were in 2012. Yes, Sky's current business model is under threat and they will need to adapt to this changing environment.
For me, the short term catalyst is going to be the rights for All Blacks Rugby. If Sky were to lose these rights many households would cancel their contract (including me). I feel that given the complexity of the contracts with Sanzaar and the wider rugby content distribution obligations, Sky is still the likely candidate. The material headwinds look challenging for Sky in the longer term. Short term, the catalyst could see the shares rerated.
Negotiations are expected to begin in April 2018, a win here for Sky will see their share price back to where they were trading prior to Amazon sniffing around with their documentary on the ABs, which Sky helped them with. Will they be $7 per share again? Unlikely.
If Spark, TVNZ, Amazon or Winston Peters want All Black Rugby, who is going to produce it? It would be easier to take Sky over, they are cheap enough.
Jeremy Sullivan is an Authorised Financial Adviser at Hamilton Hindin Greene in Christchurch. The article represents general information and does not constitute personalised financial advice.