Sky Television could be poised to cut its dividend again ahead of likely increases to its content costs, according to Macquarie research.
The assessment follows Sky TV's announcement last week of a major revamp of its sport package and Fanpass app, including boosting its line-up to 12 sport-specific channels.
And with that, new chief executive Martin Stewart vowed to do whatever it took to keep rights to key sports and win more bidding wars.
"We dropped the ball," Stewart said in reference to his company's loss of various sports rights, including the Rugby World Cup, before his arrival. "We're not going to drop it again."
"If someone outbids us, they're going to go broke," he told the Herald in an interview.
Macquarie picked up on that strategy as potentially significant to Sky's capital expenditure as it battles to compete with new and existing competitors.
"We believe SKT is taking a win at all cost approach to sport which is the glue that holds the investment case together," Macquarie analysts said.
"This underpins our view that SKT will cut its dividend from FY20 in order to provide financial flexibility for likely increase in content costs."
The broker saw Sky TV's overhaul of its sports offer as further evidence of a renewed focus to protect its position as the "Home of Sport".
"In our view this strengthens their position with NZ rugby and cricket, whom they are currently renegotiating rights (expect announcements in next 6months)."
A recent Forsyth Barr research report estimates Sky spends at least $106m a year on sports rights - around $65m on rugby, $30m on league and some $10m on netball.
Spark is said to have paid $13 million for Rugby World Cup rights (the telco won't confirm or deny), with $1m defrayed via its partnership with TVNZ.
Sky TV slashed its total dividend payments for the 2018 financial year to 15c per share from 27.5c per share in 2017.
At the time, then chief executive John Fellet said the company needed a strong balance sheet to successfully renew key content deals coming up, and preferred to repay debt instead of return cash to shareholders to meet its competitive challenges.
The market is forecasting 15c per share this year, or 12 per cent on the current share price.
But for the 2020 year the forecast range is 0– 0.15c per share.
Sky TV's half year profit dropped 19.7 per cent to $53m for the six months to December 31 with revenue down 8.4 per cent to $403m over the same period.
The company did see a slowing in the decline of overall subscriber numbers. At the end of February when the interim result was announced it had 750,321 subscribers, down 28,455 from 779,776 a year earlier. But the drop in customer numbers was more moderate than the 40,000 who were reported to have left during the previous result.
Sky TV will launch its new sport channels - all in HD - next month, with pop-ups on top of that (today Sky carries four Sky Sport channels, two ESPN channels and various pop-ups. The Rugby Channel was recently axed in the build-up to the revamp).
Fanpass - which is being re-branded Sky Sport Now - will carry all 12.
The company is yet to provide details on what would fill the extra channels.
Sky shares closed Friday at $1.22 and have fallen 56 per cent over the past 12 months.