John Drinnan on business

John Drinnan is a Herald business writer and media commentator

John Drinnan: End of the golden weather at Sky TV

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Fuelled by a monopoly on key sports content, Sky has been building to the point when it is now in half of NZ homes. Photo / NZ Herald
Fuelled by a monopoly on key sports content, Sky has been building to the point when it is now in half of NZ homes. Photo / NZ Herald

Rupert Murdoch's selling out of Sky Television comes at to the end of a long golden period when it has enjoyed overwhelming and unregulated dominance of New Zealand pay TV. Competition is banging at its door and Sky faces the prospect of regulation, albeit on the distant horizon.

Fuelled by a monopoly on key sports content Sky has been building to the point when it is now in half of New Zealand's homes.

But the growth of traditional linear pay TV channels on satellite has slowed to a halt.

Future revenue growth will come from squeezing more spending out out of customers and adapting to the internet TV services.

Whichever investor picks up News Limited's 43.6 per cent stake in the dominant pay broadcaster, it will have to be prepared for that convergence.

Much of the Murdoch stake will be picked up by financial institutions. But telcos like Telecom and Vodafone will be interested.

It is expected that any cornerstone shareholder will stay below 19.9 per cent - the limit at which a full takeover would be required.

It makes good sense for Telecom to take a stake. Video content will be the engine for growth of UFB.

The worrying fact is that Telecom has tried to enter the market twice before - and been burnt.

Like Telecom, Vodafone already has a relationship with Sky.

It recently picked up TelstraClear infrastructure and even hired a former TV programmer Jane Wilson to develop content.

But it would be preferable if any cornerstone shareholder were an experienced pay-TV operator. Murdoch provided Sky TV a lot of background help, that might not be wholly apparent to a telco.

That would point to Telstra, or to Foxtel - the Australian pay TV operator jointly owned by News Ltd and Telstra.

To which you would ask whether News Ltd would have tried for a trade sale in advance of the sell-down announced today.

The sell down coincides with fresh moves by Murdoch interests in the UK .

BSkyB division is to buy the broadband supplier O2 from Telefonica. Presumably under the same rationale that will face shareholders who take up its stake in Sky TV. The future is on the internet.

Meanwhile, Sky's approach until now has been to try and transplant its dominance of content over to the new world of internet TV.

With no regulation, its deals to exclusively supply content to telco companies are opaque.

The Commerce Commission is looking at Sky's secret deals with telcos right now.

National politicians are also planning a review of the Telecommunications Act.

It would be surprising if the Commission came up with a slam dunk hit against Sky.

And neither National nor Labour would turn its back on a company whose views have formed the foundation of its broadcasting policy for the past 20 years.

But critics such as MediaWorks have argued Sky's unregulated dominance of content risks the uptake of the taxpayer funded Ultra Fast Broadband. Sky will be under pressure to loosen its hold on content.

The stake is being sold at $4.80 - a seven per cent discount on the $5.17 it was trading at the close of Friday, and 25 per cents below the price paid by institutional investors for the 11.11 per cent held by Todd corporation.

- NZ Herald

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