As Disney Plus hunts for local partners, Sky scores upgrades

New Sky TV chief executive Martin Stewart at his company's full-year result presentation. Photo / Jason Oxenham

Sky is enjoying a wave of broadly positive analyst comments following its decidedly mixed full-year result on Thursday.

Craigs Investment Partners has even upgraded the pay-TV provider to a "buy", while ForsythBarr has bumped it up to neutral and declaring it now has "a fighting chance."

But new details are also emerging about Disney's new streaming service, which put its threat to Sky in sharper focus.

The Disney Plus app will launch in Australia (A$8.99/month) and New Zealand ($9.99/month) in November, under-cutting the cheapest Netflix plan by $2 a month.

Last week, Sky CEO Martin Stewart said it was still being worked out what content Disney content would screen or stream via his company, and which would move to Disney Plus.

But one thing is for certain: In just a couple of months, Sky will lose its longtime near-monopoly on Disney content in NZ.

Disney has said that, ultimately, it wants Disney Plus to be the exclusive home of Disney content.

And Stewart has to also have an eye on HBO Max which, like Disney Plus, sells its streaming service to audiences directly, cutting out pay-TV companies, or any other middlemen. Sky currently holds exclusive NZ rights to HBO content like Game of Thrones, Chernobyl and Big Little Lies. But, like Disney, HBO might want to broaden its options.

And he'll be keenly aware of this morning's news that Disney is said to be in talks with potential Disney Plus partners across the Tasman - and that it's in discussions with the likes of Telstra and Optus rather than traditional media players.

Disney and local telcos had no immediate comment (beyond Vodafone, which offered the general, "We're always keen to partner with great providers of content"). But it will be interesting to see if the entertainment giant sees some percentage in teaming on a marketing partnership with Sky's emerging rival Spark, or even angles to get its Disney Plus app put on Vodafone NZ's Vodafone TV platform (something that would test Vodafone's ties with Sky, but also prove new CEO Jason Paris's point that Vodafone TV can be a true aggregator).

Of course, few people want to watch all-Disney, all of the time, even if the studio now numbers Fox and Marvel among its stable, and has enveloped franchises including Star Wars and National Geographic.

Stewart will also be aware - well, we know he is, because he mentioned it at his company's full-year earnings briefing - that Disney is selling a bundle in a US$12.99/month bundle in the US that also includes Hulu and ESPN+ (Hulu, which offers contemporary content from most studios and US free-to-air networks, was historically cooperatively owned, but recently Disney has lifted its stake to 50 per cent; Disney owns 80 per cent of sports giant ESPN).

Disney counting down the days to the NZ launch of its streaming service, which will end Sky's local monopoly on its content.

The intriguing thing about Stewart, however, is that he's not just sitting back and letting globalisation rollover him. Sky is also pushing back in the other direction. As the Herald reported last week, it's just bought Rugby Pass, which holds Sanzaar rights in 60 countries, in a deal worth up to $62m.

Stewart's go-ahead approach is winning him fans.

"We think the new management has moved quickly over the last couple of months to improve
their survival value," Craigs analysts Adreian Allbon and Mareli Delange wrote as they upgraded Sky to buy.

"And this was partly validated by Spark noting a disciplined approach to its future sports rights participation."

In other words, new Spark boss Jolie Hodson has strongly indicated her company will not pay over the odds for top rugby or cricket. In an interview with the Herald, she reiterated - three times - that Spark would only bid for new content where it could "make a commercial return."

In the Mexican standoff, Spark Sport seems to have blinked first.

There's plenty else for Sky shareholders to worry about, however, from the likes of a multinational player like Amazon (or even Disney's ESPN) making a play for NZ sports rights.

Or, in the immediate future, Sky's suspended dividend, shrinking profit, and lower average revenue per month per customer - developments that, collectively, sent investors running for the exit on Thursday, driving shares to an all-time low of $1.14 (in late Monday trading they were at $1.15).

Even though Craigs upped Sky to to a buy, Allbon and Delange also trimmed their 12-month target price from $1.75 to $1.50.

The most bullish analyst, Fat Prophet's Greg Smith, told the Herald that while he though Sky could be back at $2.00 within 12 months, hitting that target was contingent on the pay TV provider successfully renewing its Sanzaar deal.

And their "buy" notwithstanding, Allbon and Delange think Sky's net profit will fall further, to $50m - though they see that level as sustainable (on Thursday, Sky reported an adjusted net profit of $97m, down from 2018's $119m).

That $50m figure doesn't include any profit contribution from RugbyPass. Craigs sees as a "sensible" buy. The US14.00/month streaming service is still in its early days (its founder Tim Martin recently told the Herald it had 40,000 paying subscribers) and although it holds Super Rugby and other key rugby rights for 60 countries, including giants like China, India, Indonesia and Russia - none of them are top rugby countries. Still, Martin thinks all expats and foreign fans and others around the world willing to pay for his service will total two to three million.

ForsythBarr's Matt Dunn and Matt Henry also said Sky was "reinventing itself for a digital world" with moves like its Rugby Pass purchase and its recent upgrade to its sports streaming app, now called Sky Sport Now.

Dunn and Henry upgraded Sky to neutral.

But, again, their enthusiasm was tempered.

Their 12-month target price was bumped up by a modest 7c to $1.25.

And the pair said further earnings declines were inevitable.

It was difficult to say if moves being made by Sky's new boss would pay off.

But at least the company is now in with "a fighting chance of living up to the current share price," the ForBarr pair said.

That's not a ringing endorsement, but it's a step up from heading to the dustbin of history.