Sky TV is buying financially troubled TV3 for $1 in a seismic media move that pits it in a new battle royale with TVNZ.
The deal, announced by publicly listed Sky TV to the NZX at 8.30am today, will see the exit from New Zealand of US giant Warner Bros Discovery in the free-to-air television space.
Sky TV shares were up 11c or 3.77% to $3.03 in early trading after the announcement.
Sky will take all of the Three (TV3), ThreeNow and Eden brands and platforms – officially as of Friday next week, August 1.
Some 130 Three/Warner Bros Discovery staff will move under the Sky umbrella, with their boss Juliet Peterson still in charge, reporting to Sky chief executive Sophie Moloney.
Media Insider first speculated about the move last month.
Viewers are unlikely to see any noticeable change in the first few months. At this stage, Sky is expected to retain existing brands, although there is still the question of what happens to its existing Sky Open channel.
The $1 acquisition is on a cash-free, debt-free basis.
Sky told the NZX that it and Warner Bros Discovery gave the Commerce Commission confidential advance notice of the transaction. It said the commission looked at the commercial circumstances and advised the parties that it did not intend to consider the acquisition further.
The new deal means Sky suddenly has a massive new free-to-air platform, for which it can compete directly with the likes of TVNZ for sales and audience.
It also gives Sky massive leverage for a free-to-air platform in sports rights negotiations. Sky is on the cusp of signing a new rugby deal with New Zealand Rugby (NZR) – until now, it had been reported that TVNZ might be the free-to-air partner for the likes of NPC games, but that now seems uncertain.
Instead, the free-to-air component of the deal might be provided by Three.
In a presentation to investors this morning, Sky said the deal would lift its total combined audience reach to 2.2 million linear and 1.2 million digital viewers per week.
In a separate statement to the NZX, Sky said the deal was expected to:
In a statement, Moloney said: “This is a compelling opportunity for Sky that directly supports our ambition to be Aotearoa NZ’s most engaging and essential media company.
“It positions us to scale faster, accelerates our growth, and further diversifies our revenue streams, particularly in advertising and digital.
“We are acquiring a business with complementary operations that is a strong strategic fit for Sky, in an accretive way for our shareholders.
“In particular, acquiring the established and fast-growing ThreeNow BVOD platform adds an important missing component to Sky’s portfolio, without incurring the significant brand and platform development costs and inherent revenue risks associated with building a BVOD service ourselves.
“The combined portfolio will give Sky significantly increased scale, diversity and mass reach that will unlock more opportunities in advertising and maximise the return on our investments in content through a strengthened, multi-platform approach.”
Moloney said: “Notwithstanding the ongoing challenges faced by the Discovery NZ business” Sky was uniquely placed “to give effect to this opportunity to accelerate our growth strategy”.
Michael Brooks, managing director Australia and New Zealand for Warner Bros Discovery (WBD), said the acquisition was a “fantastic outcome for both WBD and Sky”.
“The continued challenges faced by the NZ media industry are well documented, and over the past 12 months, the Discovery NZ team has worked to deliver a new, more sustainable business model following a significant restructure in 2024,” Brooks said.
“While this business is not commercially viable as a standalone asset in WBD’s NZ portfolio, we see the value Three and ThreeNow can bring to Sky’s existing offering of complementary assets. The transaction includes a significant and ongoing content supply agreement for WBD’s premium content, for the mutual benefit of both parties.”
The companies said that on completion of the deal, Warner Bros Discovery NZ’s balance sheet “would be clear of certain long-term obligations, including property leases and content commitments, and would include assets such as the ThreeNow platform, a portfolio of content rights acquired in the normal course of business and clear of content payables, and a normal level of other net working capital (subject to a customary post completion adjustment process)”.
“This transaction structure enables a pathway to achieving positive underlying free cash flow from year one. Longer term, the transaction is expected to deliver sustainable Ebitda growth of at least $10m by FY28.
“A structured transition plan will be in place to facilitate a smooth integration.
“This includes the provision of transitional services by WBD on commercial terms for 12 months post-completion, and a contribution towards integration costs. The net integration costs for Sky are expected to be approximately $6.5m.”
The state of Warner Bros Discovery’s New Zealand finances was laid bare last July – a massive $138m loss in 2023, including a $79.5m impairment. Its finances for 2024 are expected to be released shortly.
The financial documents last July revealed Warner Bros Discovery’s US giant parent company had committed to a minimum 12 months’ further financial assistance – essentially until now.
As Media Insider reported at the time, the company’s future would then rest on whether its new strategic direction had been working.
Media Insider reported last month that the future of TV3 was in the spotlight, with parent company Warner Bros Discovery announcing a major shake-up of its global structure to try to improve its financial performance and shareholder value.
The international media giant is decoupling – splitting into two divisions, “streaming and studios” and “global networks”, the latter of which encompasses Warner Bros Discovery’s Three in New Zealand.
As predicted in June, Sky would head a list of leading contenders to buy Three. Despite improvements, Sky TV still hasn’t nailed its free-to-air offering and associated commercial potential – an increasingly important component in the ongoing battle for sports rights.
That becomes especially important for Sky as TVNZ will soon have the capability to offer improved ad-supported streaming television and subscription video on demand under its ongoing five-year digital makeover.
Warner Bros Discovery/Three had already endured turmoil in the past 18 months, with the loss of Newshub and almost 300 jobs across the newsroom, commercial, marketing and other teams.
Some 130 people are still employed by the company.
The broadcaster hosts a full slate of shows on channels including Three, Bravo and Eden, and streaming service ThreeNow, although TVNZ outperforms it in traditional ratings with only Three’s David Lomas Investigates a regular feature in the Nielsen top 10 rankings (ages 5+ and 25-54).
Sources told Media Insider in June that Three had been performing above expectations in its pared-back state, despite the challenges facing every commercial media business.
In an auditor’s report attached to Warner Bros Discovery New Zealand’s financial documents last July, PricewaterhouseCoopers said: “The ability of the company to support its ongoing operations for the foreseeable future is dependent on whether the company’s strategic transformation initiatives will be sufficient to mitigate the impacts of the decline in the advertising market and reduce reliance on the ultimate parent entity for financial support.
“There are also uncertainties relating to the ultimate parent entity’s willingness to continue to provide financial support beyond the 12 months from the date of signing these financial statements.
“If the strategic transformation initiatives do not sufficiently reduce the company’s need for such support, these events and conditions ... indicate that material uncertainties exist that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.”
Warner Bros Discovery is essentially unravelling the merger three years ago of Warner Bros and Discovery to try to extract more shareholder value in two new companies.
The global giant announced that its new streaming and studios company would consist of Warner Bros Television, Warner Bros Motion Picture Group, DC Studios, HBO and HBO Max. Global studios would include CNN, TNT Sports, Discovery, free-to-air channels across Europe and digital products such as the Discovery+ streaming service.
Sources said in June that for the New Zealand operation, there were still many unanswered questions, apart from the obvious first priority of the new global networks company paying down cash to exit debt as quickly as possible.
“It’s not clear whether they will look to consolidate, whether they will look to merge assets ... there’s a lot of very detailed work, operationally, to happen in the next 12 months,” one insider said.
One source believed cashflow for the New Zealand operation would be a key factor in any determination of its future.
The New Zealand media landscape has been extremely dynamic in recent months, highlighted by the board changes at NZME and Trade Me buying 50% of Stuff Digital.
For Sky, the new deal offers several benefits – a digital platform in the form of ThreeNow and a free-to-air channel on Freeview channel 3 that is a lot more established, attractive and accessible than channel 15, as its Sky Open channel is right now.
It will also help Sky enormously to have a stronger free-to-air offering in its sports rights negotiations.
Another source questioned in June what any potential investor would be buying. They would want to be focused on free-to-air streaming, the source said, rather than the still-expensive, traditional transmission services, which have a limited runway.
Editor-at-Large Shayne Currie is one of New Zealand’s most experienced senior journalists and media leaders. He has held executive and senior editorial roles at NZME including Managing Editor, NZ Herald Editor and Herald on Sunday Editor and has a small shareholding in NZME.
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