Sky has reported a 234 per cent jump in net profit to $39.6 million for the six months to December 30, in line with guidance, on the back of an 80 per cent spike in its streaming business, a stabilisation of its satellite business and cost-cutting.
LATEST: Sky TV in talks with NZ Rugby about possible clawback
Streamers continue to spend less than satellite customers, however, and revenue fell 7 per cent to $356.9m.
Total customers jumped 17 per cent from 794,000 a year ago to 927,000 as Sky box numbers slipped 4 per cent versus the year-ago half but streaming customers jumped from 196,000 to 352,000.
Sky's total subscriber numbers bulged to 990,000 in June 2020 as it brought on 154,000 streamers with its acquisition of Spark's Lightbox, which was merged with Neon. Sky warned it would not be able to make all of them pay for Neon, but today announced that one-third of "hard-bundled" Lightbox customers are paying Neon subs.
Average revenue per user per month for Sky box customers fell from a $83 year ago to $79.
Average revenue per user per month for streaming customers fell from $26 a year ago to $18 after troughing at $16 in the second half of FY2020 with the Lightbox merger.
The lower spending by streamers means Sky's 80 per cent jump in streaming revenue equates to a relatively modest $11m rise (from the year-ago $25m to $36m for the first half of 2021). Sky box revenue for the same period fell from $299m to $271m.
Operating expenses fell 18 per cent to $242.8m, with $50m more in savings in the offing over the next five years after Sky's sale of its outside broadcast unit (see below).
Speaking to the Herald soon after the results were announced, new Sky TV chief executive Sophie Moloney said, "The headline result is good, but we need to do better. We need to stabilise revenue."
Cost control would continue to be a focus in the second half as Sky's big-money new rugby deal kicked in. "Bringing costs down and stabilising revenue will be absolutely critical."
The cost-cutting and revenue-stabilisation push could include clawing back some of the cost in its new Saanzar contract, given the changed rugby landscape or, potentially, Sky Sport or Sky Sport Now price rises.
On an analyst conference call, in reponse to questions about falling average revenue per customer, Moloney noted, "We haven't done a price increase for some time.
"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.
"We're mindful of the overall envelope that Kiwi families have to spend on entertainment, so we'll listen carefully and make decisions when the time is right."
Any price increase "won't happen in FY2021" - that is, before June 30 this year, Moloney said.
Sky confirmed this morning that two major projects are on the way: Sky Broadband and a new decoder that will support 4K ultra high definition plus third-party streaming apps such as Netflix. However, no timetable was given for either.
The company also says it will launch a new version of Sky Go this month - its free streaming for satellite customers. The spruced-up app - which has been in a 1000-customer beta trial - will feature a new interface, a download-to-go option and 30 per cent more content.
More investment would be needed for both in the second half, the company said.
Sky confirmed its recently revised full-year forecast for revenue in the range of $695m to $715m, ebitda of $170m to $182.5m and net profit of between $37.5m and $45m.
All free cash flow would go to new investments during FY2021 but the board would consider restoring the dividend in FY2022
Sky's first-half result comes as US sports and tech investment fund Silver Lake is in talks to buy 15 per cent of NZ Rugby for $465 million.
As well as being a key Sky TV partner, NZ Rugby's most recent rights deal made it a minority shareholder in the pay-TV provider.
Analysts are split over what a Silver Lake investment could mean for Sky TV and particularly its RugbyPass streaming service, aimed at the global market.
FY2020 was something of annus horribilis for Sky. It spent large to maintain key rugby rights and continue a restructure, but then faced the sports calendar being decimated by Covid.
On the entertainment side, the launch of Disney+ saw the Mouse House withdraw all of its channels from Sky (and its peers around the world), highlighting the threat posed by content makers' direct-to-consumer apps.
A lockdown boom did see subscriber numbers to Sky's streaming services, including Neon, increase sharply (Neon was also bulked up by Sky's purchase of Spark's Lightbox, which was rolled in). Total subs grew for the first time in years as the spike in streaming numbers outweighed the decline in Sky's satellite business for the first time but revenue and profit sank as streaming customers spent only a quarter as much per month as satellite subs.
FY2021 (which began on July 1, 2020) saw the skies brighten.
Sports returned earlier than expected, costs were held down and, after shoring up its balance sheet with a 157m equity raise and new credit lines, Sky was able to predict a return to profit, then up its forecast twice.
It helped that after months of delays, the Commerce Commission finally approved the sale of Sky's outside broadcast unit to the multinational NEP (post balance date), which will contract back sports and event production. Sky says the sale and outsourcing arrangement will save it $50m over the next five years.
The first-half also saw the surprise departure of chief executive Martin Stewart, replaced by inhouse counsel and rights-negotiation lead Sophie Moloney.
Moloney largely pledged to stick with Stewart's pivot to digital, including a new Sky box that will support 4K streaming and third-party apps such as Netflix, plus a plan to launch a broadband service.
But she did pull back from Stewart's plan to launch a mobile service as well, and outlined a lower-cost and lower-pain (if lower profit) route to Sky Broadband by partnering with Orcon and Slingshot owner Vocus.
Sky is expected to initially offer cheap broadband bundles to its own customers to keep them loyal before using content and broadband bundles to attack the wider market.
Sky shares were up 1.1 per cent to 18.4c in early trading. The stock is down 44 per cent over the past 12 months.
The S&P/NZX 50 Index closed down 0.10%, falling to 12,627.32.