Sky considers hiving off live sports broadcasting

Assessing his options: Sky chief executive Martin Stewart. Photo / Doug Sherring

Sky Network Television's in-house expertise as a live sports broadcaster may become a thing of the past.

The company confirmed to the NZX this morning that it is reconsidering whether it ties up its capital in outside broadcasting capability, given the commercial challenges the business faces.

The statement followed a Stuff report suggesting that US-based outside broadcaster NEP, which established a New Zealand presence last year, has been kicking the tyres on the OSB outside broadcasting unit that the pay-TV operator bought in 2010.

Sky broadcast 550 live events in the year to June 30, according to its 2019 annual report. In the process, its outside broadcasting trucks, which are stuffed with high-tech equipment, travelled 280,000 kilometres around New Zealand.

NEP has raised the possibility of working with Spark Sport. Its website says it has 195 such trucks and mobile units worldwide.

The pressure on Sky to review its capital asset base comes after two years of substantial losses, caused primarily by huge writedowns in goodwill, which has fallen in the company's balance sheet from $1.4 billion in June 2017 to just $395.3 million at June 30 this year.

Those writedowns reflect the competition Sky is experiencing from, among others, online streaming services such as Netflix and the sports streaming service established by New Zealand's largest telco, Spark, and which snatched the rights to this year's Rugby World Cup.

Jarden's head equities analyst, Arie Dekker, said that Sky was "going through the rest of its business" now that it had a clear picture about sports rights ownership over the next few years.

"Clearly, over time, Sky is looking to be a less capital intensive business and it is logical as part of this review that it looks at outside broadcasting" which required substantial capital investment and where technology was changing rapidly, Dekker told BusinessDesk. "Outside broadcasting is an area where technology is evolving rapidly.

"Global players like NEP likely have better visibility globally on how technology is evolving and may be better placed to take on the capital investment risk on what could be increasingly short life assets."

Sky does not split out the OSB assets in its accounts, but the 2019 annual report shows broadcasting and studio equipment with a value at cost of $144.8 million, although once depreciated, their net valuation in Sky's books is just $8.5 million.

Broadcasting costs, also not split into categories, were 15 percent of total expenses last year, at $95.8 million, the fourth largest of five categories of spending disclosed. Programming was the largest cost, at $326.5 million.

At least some of that cost would continue since Sky said it would continue to use OSB's services, irrespective of who ended up owning the unit.

"Sky is at the early stages of assessing its options, including inviting NEP to assess the OSB assets," the statement to the NZX said. "No decisions have been made.

"Regardless of what decisions are made about its future ownership, OSB's technology and the expertise of the OSB crew are an important part of the Sky Sport delivery, and that won't change."

Sky shares were we down 2.35 per cent to 83c in late trading. The stock is down 65.37 per cent for the year.