Hamish Fletcher: No hope Sky will loosen sports grip after merger declined

The rejection of Sky TV's and Vodafone's merger is bad news for the pay TV firm's investors, who sent its share price diving by 17 per cent when the market opened this morning.

The scuppering of the deal is also bad news for anyone hoping that Sky's grip on live sport events will loosen - at least in the short term.

Sky's dominance of the live sports TV market was central to the Commerce Commission's refusal of the Vodafone deal, which would have reduced costs for both businesses and allowed them to sell internet and mobile packages with pay TV.

"Given the merged entity's ability to leverage its premium live sports content, we cannot rule out the real chance that demand for its offers would attract a large number of non-Vodafone customers," commission chair Mark Berry said today.

Live sports has long been the keystone to Sky TV's service.

Few players have emerged to challenge its grip of that market, although Coliseum Sports screened English Premier League football games here for a few years as a standalone online service.

Contrast that to the competition in the entertainment market, where global giant Netflix or Spark's Lightbox have shaken up how Kiwis watch movies and television.

Given live sport is Sky's main selling point it should be expected that the company will fight even harder to maintain its grip on it and dig deep into its pockets to do so.

Sky's costs to get programming rights were up 12 per cent in the six months to December to $181.6 million, driven mostly by what it paid to secure rugby rights and the 2016 Summer Olympics.

While Sky maintaining its hold on rugby and other big ticket sporting events didn't stop the pay TV operator losing 44,000 customers in 2016, it will be key to it keeping a large chunk of the 816,000 subscribers it still has.

The merger with Vodafone was keenly wanted by Sky's shareholders, 99.9 per cent of whom voted in favour of it last July.

Given how investors warmed to the idea, an appeal against today's ruling shouldn't be ruled out.

If the commission's ruling is unchallenged or if any appeal is unsuccessful, Sky TV must continue to battle on an incumbent in an ever competitive market, fighting rivals and new entrants who will try to chip away at various parts of its content offering.

As that competition eats into revenue, Sky's ability to continue to pay big bucks for sports rights will come into question.