Sky TV has confirmed it is cutting its prices in a bid to provide more options for consumers.
Sky chief executive John Fellet acknowledges that Amazon could dominate sports video in this county and isn't underestimating the threat of the global giant making a bid for New Zealand rugby rights.
"Amazon can do whatever they want," Fellet said of Jeff Bezos's behemoth, which has a market cap of$970 billion.
"If they wanted to be the biggest drycleaner in the world, they could have that market in six months. I never underestimate anyone else's capabilities," he said.
Fellet did not mince words when talking about the threat of digital disruption to all media businesses.
Sky TV boss John Fellet is not underestimating the threat of the global giant making a bid for New Zealand rugby rights. Picture / Jason Oxenham
Fellet wouldn't comment on whether the speculation of Amazon's bid was true, but Sky will be eager to extend its hold on the rights beyond the next world cup regardless of which companies throw their hats into the ring.
Internationally, Amazon has thus far been conservative in its acquisition of sports content rights.
"They've got tennis in the UK and they've got Thursday night grid iron in the US, which is on two other channels by the way. It's not an exclusive deal," Fellet said.
In contrast to entertainment, sport tends to be more localised, which could make it difficult to justify for a global company, he said.
While sports team like the All Blacks might have fans across the world, the team's core base is predominantly located in New Zealand.
Fellet said rights to a sporting business such as the English Premier League, which was widely viewed across the world, might be better suited for a juggernaut such as Amazon – and yet, the company didn't even bid for the rights when they recently became available.
Sports rights also come with expenses not associated with entertainment content, Fellet said.
"With local sports, not only do you have to outbid us, but then you have to build infrastructure," Fellet said, explaining the company would have to invest in the local market to ensure effective content effectively to viewers.
Sports team like the All Blacks might have fans across the world, the team's core base is predominantly located in New Zealand. Picture / Brett Phibbs
Analyst Grant Williamson, a director at Hamilton Hindin Greene, said Sky TV still had the upper hand over the rights to rugby.
"They have the outside broadcasting for all the big rugby games in New Zealand, provincial and everything else," Williamson said.
"I can't see how one party could hand-pick the programming for the All Blacks without having to do everything else so Sky still have the upper hand there but it will be interesting to see how it plays out."
Amazon is yet to respond to a request for comment on this issue.
Sky TV's share price fell 9 per cent to a two month low after the result.
Net profit after tax rose 12 per cent to $66.7 million in the six months to December 31. The firm shed nearly 40,000 customers across last year.
The pay-TV operator also halved its interim dividend to 7.5c per share, retaining cash as it gears up for what may be an expensive battle to retain the rugby broadcasting rights.
UBS head of New Zealand research Marcus Curley said investors' response was not necessarily about the result.
"It's more likely about the change in the pricing strategy and the cut of the dividends, as well as concern about future profitability off the back of lower prices for the basic entry level product," Curley said, adding the move was a positive one for customer retention.
"You should see a reasonable relationship between the ability to retain and win new customers as you lower the price, but obviously the flipside of that is you're getting less money per customer," he said. "So the market is weighing up the net impact of what that might be."
