Sky TV has confirmed it is cutting its prices in a bid to provide more options for consumers.
Sky shares have fallen nine per cent today to a two-month low following the company's half year results which saw profit lift but cuts to its pricing model.
The pay-TV operator also halved its interim dividend to 7.5c per share, retaining cash as it gears up for what may be an expensive battle to retain rugby broadcasting rights.
Shares dropped by 24c to $2.56. This is close to its five year low of $2.45 in December.
Sky's net profit after tax rose 12 per cent to $66.7 million in its half-year results to December 31, despite shedding nearly 40,000 customers last year.
To stem the losses, the media giant is halving some of its basic packages, replacing Sky Basic with Sky Starter, which is now the minimum package and offers fewer channels at a cost of $24.91 a month, and Sky Entertainment, featuring UKTV, Discovery, Crime + Investigation and many other popular channels for $25 a month.
Subscribers interested only in sport can now access major sporting events cheaper.
Currently, all customers buy the Basic package for $49.91 a month and then add options of Sport, Movies and other premium channels.
Sky TV CEO John Fellet has announced major changes alongside the latest financial results. Photo / File
Sky's board said it believed the new pricing structure will help attract new customers by offering a cheaper entry point for subscribers who do not want the full Sky package.
More than 778,000 people still pay for Sky's services.
The decline in subscriber numbers included the loss of 10,608 subscribers after online DVD rental business, Fatso, closed.
The decline in subscribers also reflects continued competition from providers such as Netflix and Lightbox.
Although revenue fell 5.5 per cent to $433.1 million, operating costs also declined 8 per cent to $330.8 million.
Significant savings were made in programming (down $14.6 million, 8 per cent) and subscriber-related costs (down $7 million, 14 per cent), reflecting a lower subscriber base and the costs of the 2016 Summer Olympics being in the comparative period.
Capital expenditure declined from $52.6 million to $28.2 million, reflecting a decline in customer acquisitions and also lower project capex in the period.
The board announced it will pay a fully imputed interim dividend of 7.5 cents per share, down from the 12.5 cents per share paid as a final dividend in September 2017.
As its October AGM, Sky said it believed that the company continued to operate in a rapidly changing and uncertain media environment, and needed the flexibility to meet competitive challenges and the balance sheet strength to successfully negotiate renewal of key content deals in the future.
The company's $300 million banking facility is subject to a number of covenants, including interest and debt cover ratios, and Sky TV said today that its price cuts may trigger an impairment charge on the value of its $1.4 billion intangible goodwill.
"The cut in dividend is something that won't help investors," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch.
"Regaining the rugby rights is going to be the big item for Sky on the horizon and it (the lower dividend) gives them more firepower in their talks."
Last year, global internet giant Amazon was rumoured to be interested in bidding for rugby broadcasting rights, a key attraction for Sky TV which it has previously been willing to protect through the courts.
Sky extended its contract with the New Zealand Rugby Union and SANZAR unions in 2016 for another five years and has in-house production capability that would be hard to replicate. The company is now preparing for negotiations over what happens beyond 2021.
Williamson said Sky's existing dominance in domestic rugby coverage may give it an advantage in negotiations, because "as far as I can see you can't just pick and chose to take All Blacks rights".
Sky TV's Fellet says increased rivalry from video streaming companies is driving up the cost of programming in what he described today as "the age of 'peak content'," although the company managed to trim programming costs 8.1 per cent to $166.9 million in the six months ended December 31.
