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Sky TV shares dip as investors react to loss of subscribers; 1H profit gains

24 Feb 2015

Shares of Sky Network Television dropped 0.9 percent after the country's dominant pay-TV operator delivered a strong first-half profit, but had a net loss of 8,707 subscribers.

Net profit was $92.5 million in the six months ended Dec.31, up 13 percent on the previous period mainly due to lower depreciation and amortisation expenses at $54.1 million and a 31 percent drop in financing costs to $10 million, due to borrowings reducing last year, the company said in a statement.

Revenue was up 1.8 per cent to $464.5 million from $456.4 million in the previous corresponding period , reflecting an increase in subscriber revenues of 3 percent.

Chief executive John Fellet said he would have traded a bit less revenue to get more underlying growth.

A greater percentage of subscribers - from 58.6 percent to nearly two-thirds, are now on the higher-yielding MySky decoder rather than Sky's standard digital decoder. MySky numbers for the half were up 8.8 percent to 529,000.

Still, churn also rose to 13.7 percent from 13.2 percent while household penetration dipped to 48.3 percent from 48.7 percent.

Fellet said a disappointing aspect of the six-month result was the net loss in subscribers, who are now faced with more choice than ever before and that was impacting net growth.

"Our challenge has been attracting new subscribers to the platform in a period where the industry is transitioning," he said.

Fellet described New Zealand as one of the world's most competitive pay-TV markets. Even in the UK and US there were only three players in the subscription video on demand area compared to four in New Zealand for a population that was significantly smaller, he said.

Spark New Zealand launched Lightbox in August last year and recently said it would spend up to $35 million in its launch year rather than the $20 million originally indicated while US-based Netflix is due to launch in New Zealand next month.

In response Sky launched its new internet TV service Neon last week after delays caused by technical glitches and also its new internet TV sports brand Fan Pass.

"Internet is the future. Just like the transition from UHF to satellite, we're transitioning to the internet now because it makes sense," Fellet said.

Sky's next step is to download to all MySky decoders a software update which would allow them to connect to the internet, allowing access to content in either the traditional linear format or an On Demand basis. The software is currently being tested on Sky employees and Fellet said it could take a couple of months to iron out a couple of things he's not happy with before it's rolled out to consumers.

"I want to make it more user friendly because there's no point having thousands of pieces of content if it's hard to navigate and consumers aren't seeing it. Like with Neon, I've delayed to get these things right because you only get one shot at this."

It will also roll out MySky boxes to all digital subscribers.

The board has declared an increased fully imputed dividend of 15 cents per share with the record date of March 10, payable on March 17.

Sky shares fell 5 cents to $5.69 per share, and are down 6.4 percent this year.

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