Sky TV shrugs off free-to-air competitor

Pay-TV provider Sky Television is not expecting free-to-air digital television to hurt its profitability.

It believes customers will want to keep paying for its content even after up to 18 channels become available on a free-to-air digital platform to be launched next year.

Communications director Tony O'Brien says experience overseas shows the introduction of similar services had little effect on pay-TV providers.

"It hasn't around the world, so we don't see any reason why it should here in New Zealand."

First NZ Capital analyst Sarndra Urlich says Sky TV is strong and estimates its digital penetration will reach 50 per cent in four years, up from 39 per cent now.

In a research note, she says FreeView's impact will be marginal, at least in the medium term, particularly as the free platform has several hurdles to overcome.

The cost of installing equipment so households can receive free-to-air digital TV is a barrier, she says, and compelling additional content will be needed as a sweetener.

But the cost of providing new programming means Urlich does not foresee "compelling, differentiated" content being offered any time soon.

"This poses a 'chicken and egg' problem for FreeView NZ. Why buy a box if the content on offer is not compelling? Why step up the content game if the customer network is not in place?"

Sky TV shares dropped since hitting a high for the year of $6.70 in March and are trading below most analysts' valuations.

One explanation is that even though analysts such as Forsyth Barr's Rob Mercer ruled out a serious risk from free-to-air digital TV, other investors are not so certain.

Sky TV shares fell to a 12-month low of $5.42, days after the FreeView announcement.

They closed 1c down at $5.80 yesterday.