Key Points:

Sky Television chief executive John Fellet put an upbeat spin on the
company's 16.7 per cent fall in half-year profits, saying that the result was due
to the success of the MySky High Definition platform.

And he said he sympathised with Rick Ellis at Television New Zealand who revealed yesterday that the state broadcaster has to cut $25 million from budgets to avoid a loss in June.

"Jeez ... if he can do that he should be running Sky," said Fellet, who has a spirited rivalry with Ellis in the war between pay television and free-to-air and the free platform Freeview.

Sky TV's net profit for the six months to December 31 was down from
$51.2 million to $42.6 million. But Sky subscriptions increased 10,493 to
759,069 during the period.

The vast majority of Sky's revenue comes from pay television, which Fellet believes is insulated from the economic downturn.

But Sky also owns free-to-air tele vision Prime TV and has felt the chill winds of the advertising downturn.

Prime results are kept secret, but Fellet doubts Prime will make a profit this year.

"We are just more resigned to the fact that it is going to get ugly out there," he said.

Fellet said that higher viewing levels for Sky channels running advertising meant that it was able to compensate for Prime.

He said that Sky was still on target to meet guidance for the year to June 30, which includes a profit of $90 million to $100 million. One analyst who asked not to named agreed with Fellet's view that pay television was in a good position.
Consumers were likely to stay at home rather than go to entertainment venues.

But the analyst said the 14.1 per cent increase in costs _ from $229.4 million to $261.4 million _ was higher than expected, indicating that it had underestimated the costs of moving to the high definition product.

Sky TV closed yesterday at $3.95 down 24 cents, or 5.7 per cent.

Fellet said that additional costs were due to faster than expected uptake for the My Sky HDI.

Sky had also spent heavily with $50 million on a new studio and was buying high definition decoders to cover growing demand, he said.

Fellet acknowledged that the $4 million spent on the Prime Television variety show New Zealand's Got Talent had been disappointing, because it did not deliver advertising revenue.

The show made some sense in recovering audiences after TV One dominated viewing during the Olympic Games, but it had coincided with a collapse in advertising revenue, which he estimated was down 10 per cent if the effect of the Olympics was taken into account.

Sky has said that the show would not be repeated this year.

Total revenue reflected solid sub scriber numbers and an increase in the average monthly revenue per sub scriber of 2.5 per cent, up from $61.96 to $63.49 for the comparative period.

Operating costs increased by 14.6 per cent to $261.9 million, attributable to higher subscriber numbers, promotional discounts, costs associated with the Rugby League World Cup and New Zealand's Got Talent and the marketing costs associated with the launch of the HD platform.

The Sky board has resolved to pay a fully imputed interim dividend of 7.0 cents per share.

The scheduled date for payment of the dividend is March 6.