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Not much joy in Fellet's Sky TV swansong

Wednesday 20th February 2019

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It was the final results announcement for Sky Network Television’s long-standing chief executive John Fellet this morning, but he didn’t have much cheerful news for investors.

Revenue for the six months to Dec. 31 was down 8.4 percent to $403 million compared to the same half in 2017, while net profit was down 19.6 percent to $53.6 million and revenue from residential satellite subscriptions was down almost 10 percent to $322 million. Earnings before interest, tax, depreciation and amortisation for the half came in at $128.3 million.

Average monthly revenue per residential subscriber has gone from $79 in the Dec. 2016 half, to $78 in 2017, and just under $76 now.

Fellet steps down as CEO today after 28 years with the company and 18 years in the top spot, although he remains a director and significant shareholder. 

Fellet is replaced by veteran British media executive Martin Stewart, who is being heralded as the man for the job of moving Sky TV from a traditional satellite pay TV broadcaster to a multi-platform entertainment business.

It won’t be an easy task in what the company describes as “a highly competitive and evolving market”, and one in which the country's largest telecommunications provider, Spark NZ, today announced pricing and launch timing for its live sports streaming service to rival Sky TV's long-time dominance of key sporting content.

“Competition for content rights continues to heat up, and Sky’s programming expenses now equate to 40.1 percent of revenue, compared to 37.9 percent of revenue for the previous period, and 32 percent in 2016,” Fellet said.

Jeff Latch, head of Spark Sport, was happy to put the boot in to Sky - though he wasn't naming the satellite company specifically.

“Spark Sport offers a modern and convenient way to watch sport: no long-term contract, the ability to purchase a single standalone sports package, and an affordable monthly price. We think Kiwis will love being able to stream sport in high definition on a range of devices, at the time they want, with access to a range of live and on-demand coverage, for an affordable price.”

Last year, Spark bought the rights to broadcast games from this year's Rugby World Cup in Japan, but there have been questions raised about whether the technology will be robust enough to allow glitch-free viewing - an issue that Fellet referred to indirectly in his commentary on the results.

“We are confident that Sky’s ability to reliably deliver live sport to 100 percent of New Zealand - including live streams over the internet, but with satellite doing the heavy lifting - is a key competitive advantage,” he said.

Upsides in the result included improved churn rates and better retention of new customers.

But overall it’s a tough picture, says Josh Wilson, senior portfolio manager with NZ Funds.

“Customer numbers and revenue continue to fall and it feels like this will be a very difficult trend for Sky to reverse.

“Possibly the most important detail in the release is earnings guidance for the full year, which is 12 percent below current market expectations.”

Sky tagged 2019 full year revenue of $790-795 million, ebitda of $230-235 million, and net profit after tax of $85–$90 million.

Wilson also points to a slide in the investor presentation headed ‘Sky: NZ-based company’. The slide details the number of employees (1,100), income tax paid ($40 million), GST ($91.6 million) and PAYE ($29.6 million).

“It’s highlighting the fact that Sky, unlike Netflix, for example, is a New Zealand company with New Zealand employees that pays a lot of tax. Looks like it is imploring us to support/buy Kiwi Made. This says a lot about the company’s current situation, in my view.”

Sky has been hard hit by competition from streaming services like Netflix and Spark's Netflix equivalent, Lightbox, over the last few years.

Fellet said the company's had to keep its prices down to try to hold onto subscribers.

“While we have traditionally implemented a price increase each year, broadly in line with CPI movements, for the last three years we have held prices.”

Although Sky plans an average 1.9 percent price increase in April, this is well below the 4.2 percent increase in the consumer price index over the three years, Fellet said.

It remains to be seen what the reaction to the price increase is from remaining subscribers, of whom there are still 750,000, with the satellite TV service beaming into 43 percent of New Zealand homes as of Dec. 31.

But investors are unlikely to be excited. Sky TV’s share price has seen a steady decline over the last five years, from $6.50 in mid-2014 to less than $2. Sky TV shares fell 1.7 percent in morning trading on the NZX to $1.72 apiece.


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