Special Report: The Looming Battle For The Digital Dollar

By Perry Williams, Wellington Business Correspondent

Thursday 30th November 2000

Listed pay TV company Sky TV (NZSE: SKY) has admitted it has been caught by surprise at the rapid take-up of its digital television service.

But despite growth of over 8000 subscribers a month, Sky said it still realised a deal with the new TVNZ/Telstra Saturn partnership was paramount to the company's continued growth in the next few years.

Sky chief executive Nate Smith told ShareChat that more than 200,000 of its subscribers were now on the digital network and he hoped growth of about 8000 customers per month would continue.

But Mr Smith said it was still important to come to some understanding with TVNZ in the long-term.

"At the moment they've put us on the backburner but we would anticipate that once they have finished their negotiations with Telstra Saturn, they will decide to talk to us."

However, Mr Smith said it was certainly not the sort of situation where Sky would plead for an agreement.

"An agreement would be good for both of us and certainly we'd love to have them on board. But if they don't want to come, life goes on."

Mr Smith said TVNZ's memorandum of understanding with Telstra Saturn to form a digital satellite-to-the-home venture was good news for all three companies.

Sky's digital subscribers could look forward to free access to TV1 and TV2. Unlike pay TV, it would not be scrambled therefore making free television accessible to as many people as possible.

That's an assumption firmly contested by both TVNZ and Telstra Saturn but Mr Smith said it came down to common sense.

"The Government is surely going to be interested in making this new digital service available free to as many people as possible. Otherwise, the consumer will be paying $500 to $600 for a TVNZ box and more if they want another decoder (and Sky TV)."

Telstra Saturn, thought to be providing the bulk of the funding in the new venture with TVNZ, disagreed with Sky's logic.

Deanne Weir, director of corporate development at Telstra Saturn, said Sky had, and still potentially has, the opportunity to do a deal with TVNZ and Telstra Saturn.

But she said the expectation that their joint digital signal could be picked up by Sky satellite dishes without a previous agreement being signed between the parties could not happen.

"The reality is that until a deal is struck with Sky, people will not be able to view TV1 and TV2 on their Sky box. It will be scrambled so Sky will not be able to access it. The old analogue option will still be available so the idea it will be free-to-air is just an assumption."

Telstra Saturn has previously said it would be up to themselves and TVNZ rather than the Government to decide whether to scramble the signal.

Despite signing up 55,000 new subscribers in the year to October, Sky has been hard hit by the falling Kiwi dollar this year recording a $27 million loss in the year ending June 30.

Every 1 cent fall in the dollar cost the company about $2 million in operating cash flow.

To counter falling income, Sky linked up with Telecom this year bundling pay television together with telephone services, Internet and mobile phones.

Telecom increased their share in Independent Newspapers Limited (INL) to 10 percent earlier this year. INL owns 47 percent of the Sky Network.

Telecom has denied taking any special interest in Sky because of their shareholding in INL but obviously Telstra Saturn and TVNZ are watching all three companies with eagle eyes.

INL has said it would expect Sky's strong digital growth to lead to a profit in the next few years after a considerable loss this year.

In other developments, Sky reaffirmed plans to introduce interactive "open-TV" next year that would allow people to do banking or send emails.

Mr Smith expected the first product launch to come in mid-January 2001 with games, a programme guide and email to follow in the first three to five months of next year.

Programmes could be recorded onto hard drives in the decoder by the end of next year.

Despite strong digital growth for Sky this year, Mr Smith said there was still sizeable growth in the existing UHF technology with numbers recently passing 193,000.

"We're still enjoying good growth in UHF. So we're not about to shut down services just because we've also got great digital growth."

The trend toward embracing all things digital had to be viewed in context.

"People are saying digital TV is going to take over the world in five minutes but we certainly don't subscribe to that view."

Despite TVNZ's reluctance to discuss future plans with Sky, Mr Smith said the company was always open to further talks.

Comments from our readers

No comments yet