Sky TV shares downgraded

Sky TV chief executive John Fellet. Photo / Natalie Slade

Morningstar financial analysts have downgraded Sky TV shares from accumulate to hold as competition heats up for internet TV.

Sky has indicated it will launch its subscription-video-on-demand service Neon this week offering several thousand hours of content that can be streamed from the internet.

That is in addition to its premium pay TV service with 856,000 subscribers.

Neon will be priced at $20 a month and will compete with new corporate players Spark with Lightbox and the US based Netflix set to launch here in March.

In a note issued today Morningstar said "Sky TV might eventually face competition from internet providers and telecom operators once New Zealand's broadband infrastructure improves".

Higher competition could result in greater price discounting which is beneficial to consumers but detrimental to the firm's margins, Morningstar said.

"However we think competitors will struggle to make sufficient returns at least during the initial years given Sky's large subscriber base and New Zealand's small population."

Sky TV shares were slightly down this morning, trading at $6.03 shortly after midday.

Sky TV has indicated it will launch Neon this week and its telco partner Vodafone is expected to offer a six month free trial as part of its uncapped broadband plan.

Sky has close links to Vodafone which is expected to announce six months free Neon as part of marketing for an uncapped broadband plan.

Lightbox announced last week it would be offering the SVOD service free to subscribers for many of its Xtra broadband service customers for 12 months and still offer it at $15 a month for people using others.

Lightbox has also announced a joint venture with online sports provider Coliseum that some believe will undermine Sky's hold on sports rights and fans.