Sky mulls new digital network

John Fellet says Sky is considering a television service for mobile phones. Photo / Kenny Rodger

Sky Television is pondering a new network for TV or mobile phones to replace the analogue UHF service to be shut down in March, chief executive John Fellet said yesterday.

Sky's net profit slipped nearly 10 per cent as the pay television company spent $60 million on its MySky HDi digital video recorders, according to financial results to June 30 issued yesterday.

Fellet said results - which he described as pleasing - were also affected by a 14 per cent fall in advertising revenue across pay channels and free channel Prime TV.

Total advertising revenue was $57.8 million compared to $66.5 million for the same period last year. Advertising revenue for Sky pay channels was down 10 per cent.

Fellet said advertising revenue was down 17 per cent for the fourth quarter and he saw no sign of recovery since the start of the 2009/2010 financial year.

Sky is heavily marketing the new MySky high definition set top box digital video recorders, which allow easy recording of programmes.

Combined with the lower-technology version of MySky there were now more than 100,000 Sky DVRs in the market. Fellet said MySky HDi delivers more revenue for interactive users once the number of users reaches 160,000.

Sky subscribers grew by 30,326 - or 4.1 per cent - to 778,902 or 47.2 per cent of New Zealand households. There were 84,002 MySky HDi users - 4000 ahead of target.

Fellet told the Herald he was looking at new digital networks to replace the three-channel UHF analogue service - which was the foundation for Sky when it began in May 1990.

One option was to adapt the Ultra High Frequency (UHF) rights into digital services - a terrestrial miniature version of Sky - that might provide up to 20 channels in a satellite service, Fellet said.

The other was to develop a television service for mobile phones but this would require new UHF-capable handsets which were not yet available in New Zealand.

Goldman Sachs JBWere financial analyst Tristan Joll said expansion would be dependent on government digital policies.

"Sky has plenty of options but they do not need to deal with them anytime soon," he said.

Joll said that at first he was disappointed by a 2.1 per cent drop in earnings before interest taxation, depreciation and amortisation, but overall was comfortable with the results.

There was good uptake for the high definition option which was taken up by 17 per cent of MySky users.

The average revenue per user had risen from $62.10 to $64 during tough economic conditions, Joll noted.

On top of new basic channels such as Comedy Central - and buying the Arts channel - state-owned digital channels TVNZ 6 and TVNZ 7 joined the platform.

Sky would have liked two more channels in the basic package, he said.

The churn rate - the key figure for people who leave Sky and require marketing effort to replace - was 14 per cent, down from 14.9 per cent last year.

The churn rate for MySky HDi was 9.9 per cent, which was more than the 7.4 per cent budgeted.

Fellet blamed the deficit on marketing over the Christmas period that linked two-month free trials with the sale of new televisions.

The Sky Television board of directors announced a final dividend of 7c per share payable on September 4 bringing the total to 14c for the year.