Sky stumped as Spark takes domestic cricket rights

Spark's head of sport Jeff Latch. Photo/Jason Oxenham

At the stroke of a pen Spark has put to rest any doubt about its commitment to streaming sports content by snatching the New Zealand Cricket broadcast rights from Sky Television.

At the same it has dealt another major blow to Sky, already reeling from competition and alternative viewing options.

Sky TV's stock sank nearly 20 per cent to less than a dollar after Spark said it secured all New Zealand Cricket matches played domestically for the next six years in a deal that includes state-owned broadcaster Television New Zealand providing a free-to-air element.

Analysts couldn't see any silver linings for the pay TV operator.

"It's a significant blow to Sky," said Matt Henry, head of wealth management at Forsyth Barr. "Cricket is still second most watched sport in New Zealand and provides a critical part of their summer schedule, so it leaves a pretty significant hole for Sky over that period."

"There's no way to sugarcoat this for Sky," said Greg Smith of Fat Prophets. "Six years is a big loss, no question it's a big blow."

Rickey Ward of JB Were said this effectively means Sky is hanging its hat on rugby with all its eggs in the one basket.

"Sky TV needs to reinvest back into a platform in the same way that Spark is doing. They also need to pay up for content if they are reliant on rugby. Therefore the dividend got removed in anticipation for that.

"This doesn't help, which is why the share price is under pressure again."

Sky shares closed down 22c or 19.82 per cent at 89c, a record low.

For Spark the deal further confirms it is serious about the streaming space despite a challenging few weeks delivering Rugby World Cup games to a wildly critical New Zealand audience.

Head of Spark Sport Jeff Latch wouldn't reveal the cost of the cricket rights to Spark but told the Herald it would not restrict the company from adding more sports content package in the near future.

"We have a few irons in the fire and we're certainly keen to expand the range of sporting content that we've got," Latch said.

"We look at each investment as an individual investment."

Spark's victory in the NZ Cricket bidding war comes after Sky revealed a six-year deal for the Australian cricket rights, which includes a highly anticipated Boxing Day match against the Black Caps.

This essentially splits the cricket coverage between two broadcasters and does complicate matters for those die-hard Black Caps fans who don't want to miss a match – particularly one as monumental as the first Boxing Day test between the nations since 1987.

Asked how customers would view the increasing number of subscriptions needed to watch their favourite content, Latch said the fragmentation of rights is increasing fast.

"Whether people end up having to pay more or less, the jury is out on that. There has been a lot of bundling in the New Zealand market for the past 20 years and I think we are breaking it down … so it will be very interesting to see how this all unfolds over the next two to three years.

"Yes people will need to subscribe to more than one service but whether or not it ends up costing them more money, I don't know."

Greg Smith of Fat Prophets. Photo / File

The expansion of Spark's sports coverage comes during the Rugby World Cup, an event where its coverage has attracted loud criticism from those users whose experience has been disrupted, but has attracted 186,000 subscribers.

Latch said the principles involved in covering a sporting event were the same whether it was ten minutes long or ten hours long.

"We are really confident in the performance of the platform. The big thing we've learnt out of the Rugby World Cup is how critical education is."

By that he means educating customers about how their individual device set up works in with Spark Sport.

"Everyone's set up in the house is different. You can't over invest in that education."

Spark shares slipped 2.28 per cent to $4.51.

Meanwhile, the slump in Sky's share price means it needs shareholder approval to bid for the SANZAAR rugby broadcasting rights. At the current market value, a bid of more than $190 million would trigger the 50 per cent threshold needing shareholder approval.

That would effectively strand the pay-TV operator should a bidding war result, even after its decision to can dividend payments in order to build a war chest after being scooped by Spark for the Rugby World Cup this year.

Shareholders will vote on freeing up the management to pursue the rights, which end late 2020, at next week's annual meeting. They have been warned that failing to win the SAANZAR rights "represents a significant threat to shareholder value.

Forsyth Barr's Matt Henry said Sky was prone to more customer churn following the loss of the domestic cricket rights.

"When you lose the strongest part of your summer calendar there's just another reason for people to switch off for those summer months. And even if they intend to come back there's always people who don't come back as quickly.

There's no doubt at all that Sky wouldn't have wanted to lose this."

Henry said a lot of what Sky was doing under new chief executive Martin Stewart was good.

"Certainly the feedback from stakeholders about the attitude of sky under new leadership are pretty positive, but the reality is it's a different world to what it was even three or four years ago."

Rickey Ward of JB Were. Photo / File

JB Were's Rickey Ward noted that Stewart had made it clear that Sky would bid til it hurt to keep the rights to key sports and was intent on holding up the mantle as the home of sport in New Zealand.

"Well, that doesn't appear to be the case," Ward said.

"The bigger picture here is that most people thought there was going to be a more commercial approach to content from Spark – this is a commercial approach, but it's clearly not the one people were expecting where they thought it would be more toward Sky TV offering or extending the rights to broadcast through other mediums, a la Spark.

"Spark has built a platform under [former CEO] Simon Moutter and [new CEO] Jolie Hodson and they are going to carry on developing that because in their minds it's the distribution model of the future."