Sky TV more than tripled its net profit to $39.6m for the first half as it chiselled down costs, and saw a gain in total customers as its streaming services grew faster than its satellite business declined.
But talking to the Herald soon after the result, new chief executive Sophie Moloney skipped past any premature celebration of a turnaround to focus on the challenges of the second half.
"The headline result is good, but we need to do better. Bringing costs down and stabilising revenue [which fell 7 per cent in the first half] will be absolutely critical," she said.
As Moloney surveys the cost landscape at Sky, one item will stand out more than any other: her company's new five-year rugby rights deal with Sanzaar - which was signed back in November 2019, but kicks off with the season about to get underway.
Sky has never publicly put a price tag on the deal, but in September 2019 it sought shareholder approval to enter a deal worth somewhere north of $235m with Sanzaar for five-year rights to All Blacks, Super Rugby and Mitre 10 Cup games from 2021. The Herald understands Sky ultimately paid $400m, or a 20 per cent increase over its previous contract, as NZ Rugby appeared to have then Sky CEO Martin Stewart over a barrel as he sought to try and repel Spark's incursion into sport
Now Stewart's replacement, Moloney, has to pay the piper.
However, the Covid-ravaged, domestic rugby-focused world of March 2021 looks a lot different to the world of November 2019, when the deal was inked.
And while thankful that Super Rugby Aotearoa and other localised, slimmed-down rugby competitions are taking place, it's not what Sky signed up for.
Stewart talked openly about a possible clawback, citing UK broadcasters' bid to claw back some of the £330m in coverage rights paid to the English Premier League for the interrupted season that ultimately wound up in July last year. Results of the talks were never made public, but sources told the Financial Times that the Premier League agreed to return £170m to Sky UK.
Moloney was more reserved in her comments today, but did say she met with NZ Rugby last week, when the issue was on the table. "You'll appreciate conversations with a partner are always confidential," she said "But yes we are in a conversation about what are those impacts on value for this year in terms of the nature of the competitions".
The Silver Lake linings playbook
So it's possible Sky will pay less than it agreed to in November 2019?
"Yeah, we're working through that with NZ Rugby," Moloney said.
"And of course we're mindful of the health of the game in New Zealand - which is where the Silver Lake interest comes in. We're looking on with interest and that's part of the conversation we're having. We're working through the impact with the parties."
Silver Lake is the $200 billion US investment fund that is said to be in talks to buy a 15 per cent stake in NZ Rugby for $465m (big money by local standards, but not against previous investments by the American fund as it has taken slices of the UFC, New York Nicks, Manchester City and other high-profile teams and franchises).
Some pundits have feared Silver Lake will only be concerned with boosting the value of the All Blacks as a global brand, potentially at the expense of grassroots rugby.
But there could be a potential win-win if Sky claws back some of the huge contract, but the loss to NZ Rugby is more than compensated for in fresh funds from Silver Lake.
Analysts canvassed by the Herald were split on the impact of Silver Lake's potential investment in NZ Rugby
But two - Craigs' Wade Gardiner and Jarden's Arie Dekker - saw it tipping the Sky-NZ Rugby power balance in the union's favour. Gardiner saw a Silver Lake investment undermining Sky's already wobbly Rugby Pass global steaming service. He saw NZ Rugby instead looking to the well-connected Silver Lake to leverage its streaming and social media contacts to increase its international exposure.
Sky bought RugbyPass in 2019 in a deal worth up to US$40m, including up to US$10 in earn-outs. Last year, Sky wrote down its carrying value from $38.4m to $10.9m, noting the global service had incurred some $14.5m in accumulated losses with "no material synergy benefits to date." There was no word on its paying subscriber numbers, which its previous owner had told the NZ Herald were under the 20,000 mark.
Moloney would only say that Sky would make a major announcement about Rugby Pass in the next few weeks.
Price increases on the table after June
Sky could also stabilise revenue by increasing prices.
On an analyst conference call today, after it was noted that average revenue per user per month was falling (see table above), Moloney said prices increases were on the table - if only at some point after the end of this financial year (June 30).
"We haven't done a price increase for some time," Moloney said.
"Given the way 2020 unfolded, we felt last year wasn't the right time for that. We don't have any immediate plans to increase prices, but we are doing some work to consider our pricing and packaging, listening to our customers and considering how we provide value and choice.
"Another piece of context is the uplift in our sports programming costs, particularly with the commencement of the new Sanzaar deal from 1 January.
"So, yes, in the context of our overall 'value for money' work we will be looking at the future price of Sky Sport."
A cheaper way to Sky Broadband
Sky recently said it would partner with Vocus (owner of Orcon and Slingshot) to deliver its pending Sky Broadband product.
"Originally, we were going to be on a different level of service provision," Moloney said.
Instead, Vocus had been inserted between Sky and UFB fibre network operator Chorus to grease the wheels.
Partnering with Vocus would be a lower-cost way, lower-risk way to launch the service, if also giving up a slice of potential profit.
"We're really happy with the deal we've struck here. They're an experienced operator in the market," Moloney said.
And while here predecessor said it was "only a matter of time" before Sky introduced a mobile phone service as well, Moloney said that was now off the agenda.
"This is not about us becoming a telco. We're a content company that wants to deliver extra value to customers."
There's no timetable for a Sky Broadband launch, though the CEO said the service is now in trials.
A second major project is a new Sky TV box, which - going by a customer survey - will include 4K ultra-high definition and support for third-party streaming services such as Netflix.
Moloney did not want to give a timetable for the new decoder, but indicated it was not on the immediate horizon (Stewart had said as soon as June this year).
The new Sky chief executive said, ideally, the new Sky box would support any third-party app a customer wanted to install, including Spark Sport - but it was still too early to say if Sky and Spark could reach an accommodation.
Moloney said she had met with Spark CEO Jolie Hodson. The Sky chief executive said her company could help extend the reach of Spark Sport's domestic cricket coverage by getting it into pubs and clubs - in the same manner as Sky did with a dedicated pubs-and-clubs-only channel for Spark Sport during the Rugby World Cup. But, again, talks were still in early days.
Earlier in her career, Moloney worked for Sky in the UK, where the pay-TV broadcaster has both competed vigorously with BT for the Premier League, and hosted an (extra-cost) BT channel on Sky for people who want to watch games from both rights holders via one service (a convenient option until Amazon recently ruined the party by grabbing exclusive rights to series of EPL matches over the Christmas and New Year period).
Once Sky's new box does arrive, it's possible customers will pay an upfront fee for it, reducing or eliminating the considerable rollout costs.
Another cost-reducing measure is what Moloney calls "co-exclusive" content deals.
The likes of Warner (HBO Max), Discovery (Discovery+) and ViacomCBS (Paramounta) are all in the process of launching global, direct-to-the-consumer apps, hoping to ape the runaway success of Disney+.
While this means Sky can no longer offer some global entertainment exclusively - or not a much of it exclusively as before - it does make it cheaper.
Sky shares were down 3.3 per cent to 17.6 c in mid-afternoon trading. The stock is down 46 per cent over the past 12 months.
NZ Rugby did not immediately respond to a request for comments. Earlier, when Sky's Stewart first raised the prospect of a rugby rights payment clawback, the union said it did not comment on confidential negotiations.