The price rise was announced this morning. It turned out to be a case of particularly bad timing for the pay TV broadcaster as the insurgent Spark revealed the low-cost pricing for its new Spark Sport app at the same time.
Outgoing chief executive John Fellet told the Herald that the company had held prices for the last three years but that it had now made the tough decision to lift prices.
Fellet said subscribers should expect an increase of an average of 1.9 per cent, which he noted was well below the consumer price index over the last three years.
The Sky Starter pack would be going up from $24.91 to $25.99, Sky Entertainment from $25 to $25.50 and Sky Sport from $29.90 to $31.99.
"It was a tough decision and one that we hated to do, but at the end of the day if we want to keep the content that subscribers want, I'm hoping that they'll understand the impact and see the benefit," said Fellet.
The average Sky consumers spends on average $75.82 on the service per month. This figure does, however, increase to $84.23 when limited to satellite-only users.
On the flip side, Sky also announced that it would be canning its HD fee, instead allowing all users to access its HD channels. This would see some customers get a discount of $9.99 from their monthly subscription.
"There will be certain people out there who don't even know that they have the option of HD, so they'll see a dramatic increase in quality," said Fellet.
Sky currently offers 20 channels in HD and plans to expand this by a further 10.
Over the last year, Sky also rehauled its pricing structure, making much of its content more affordable to subscribers.
Among the changes, Sky stripped back its basic starter package, offering it for $25 per month. Subscribers were then able to tag on a sports package for an additional $30 - offering access to sport for $55 rather than the previous figure of $80.
Sky went even further after that, launching the $15.99-a-month Fan Pass Mobile, which allows customers to Sky Sport channels One through Four on their phones.
The risk of these changes was that they would significantly decrease the average amount spent per user. However, the impact hasn't been as stark as expected, with Sky's average revenue per user dropping from $76.69 last year to $75.82 in the latest rundown.
Fellet said that far fewer people opted down than initially expected and that those who did ended up investing their money into other packages offered by Sky.
The question now is whether the increase in the pricing will lead to some customers following through on that often-used threat and cancelling their subscriptions.
While Sky retains over 750,000 customers, it did shed a further 28,000 in the latest rundown. And company's interim report today projected that it would lose a further 98,000 through to 2023.
This price hike is understandable to some degree in that it comes at a time when Sky has faces heightened competition on local level from Spark and internationally from the likes of Netflix.
This competition has had the impact of increasing the cost of the content for Sky.
SKY's programming expenses now equate to 40.1 per cent of revenue, compared to 37.9 per cent of revenue for the period to December 2017.
Given the company already spent $161 million on content in the last six months, it comes as little surprised it declined to outbid Spark and TVNZ in the fight for the Rugby World Cup rights.
Fellet is pragmatic on this point, noting that Sky has only secured two Rugby World Cups since 1987.
"It goes in cycles," Fellet says. "I remember one time that TVNZ and TV3 fought really hard for sports and it was difficult for us to get any sports.
"You can't buy everything. You need to look for the best value out there," he said.
The value proposition of the Rugby World Cup is reduced by the requirement that the late-stage games are required to appear on free-to-air television.
This often means that broadcasters are paying for exclusive rights for group games, which don't always make for compelling viewing.
"The teams are so spread that there's generally only one legitimate challenge in a pool match. The others would be a walk-over for the All Blacks," says Fellet.
Outgoing Sky CEO John Fellet. Photo/File.
Fellet today hands the business over to incoming CEO Martin Stewart, but he will remain on the board of the company.
His decision to remain involved has been criticised in that it doesn't give the new boss the freedom to inject new life into the business.
However, Fellet rejects this assertion, saying the decision is motivated for sound business reasons.
"I wish my predecessor had stayed on the board because he would have known the history of things," says Fellet.
"I let Martin determine whether I stay on the board and gave him carte blanche that any time he wishes, perhaps because I'm not being productive, to find someone better for the board. The shareholders should have that."
Fellet's relationships with key programming partners also go a long way toward justifying his position on the board.
Fellet has been signing rugby deals for 25 years as well as establishing long-running partnerships with HBO and other sporting bodies in New Zealand.
"I think he [Stewart] felt I could add some value, but if he doesn't, he has my permission to call me up and say, 'thanks John for all your help in the past'."
