Sky TV shares plunge as profit drop looms

MySky recorders will continue to show traditional content, but the internet connection will also provide archived back issues of shows. Photo / Dean Purcell.

Sky TV shares have plunged more than 12 per cent this afternoon after the company said it expects profit will fall as much as 11 per cent in the 2016 financial year.

Sky said it expects profit to be between $153 million and $158 million in the year ending June 30, 2016, below the $172 million it reported this year, according to presentation slides for the company's annual meeting.

"The delivery of new services including Neon, FanPass and SKY ON-Demand has increased costs ahead of attracting a critical masss of subscribers," chairman Peter Macourt said in speech notes.

"Further the 2016 year will also see an increase in programming costs for the Rugby World Cup, the new SANZAR Rugby agreement, the new Disney and Discovery channels and a general escalation of content costs with the entry of new competitors."

There was also the expectation some subscribers would ditch their SkyTV account once the Rugby World Cup finished, he said.

Sky TV shares had dropped nearly 13 per cent to $4.56 by 4pm and have fallen about 32 per cent in the past 12 months.

Sales are expected to be between $928 million and $938 million, little changed from $928 million in 2015, while capital expenditure will increase to between $125 million and $130 million, from this year's $115 million.

The pay-TV company is battling to retain customers against the rise of on-demand streaming services, such as US content provider Netflix. Sky is spending $120 million over three years to replace its old digital decoder boxes with new My Sky decoders for about a third of the price it paid for its original digital boxes in 1997.

As well as enabling internet access to video-on-demand services, the new boxes will be able to compress more information, allowing the company to access double the satellite bandwidth for no extra cost.

To drive future growth, Sky is also investing in other models, such as a short-term sports subscription service FanPass, low-cost pay-TV service Igloo and subscription video-on-demand service Neon.

"The delivery of new services including Neon, FanPass and SKY ON-Demand has increased costs ahead of attracting a critical masss of subscribers," chairman Peter Macourt said in speech notes. "Further the 2016 year will also see an increase in programming costs for the Rugby World Cup, the new SANZAR Rugby agreement, the new Disney and Discovery channels and a general escalation of content costs with the entry of new competitors."

There was also the expectation some subscribers would ditch their SkyTV account once the Rugby World Cup finished, he said.

See Sky's latest investor presentation here: