Sky TV faces critical sporting test to reverse customer losses

Sky TV says the loss of 8707 customers over the six months to December was disappointing. Photo / Greg Bowker

Sky Television faces a "critical test" over the next six months to see if a line-up of popular sporting events will reverse customer losses, says one analyst.

The country's dominant pay-TV provider recorded a net profit of $92.5 million in the six months to December 31, up 12.7 per cent on the corresponding period in 2013.

The company will be paying a dividend of 15c a share. Its shares closed down 5c yesterday at $5.69 after the results announcement.

The rise in half-year profit, at a level that beat one analyst's tips, was mostly because of a fall in depreciation and amortisation costs.

Sky TV reported revenue of $464.5 million for the half, up 1.8 per cent on the corresponding period. Average revenue per user was $79.43 in December, up almost $2 from the same time the year before.

The number of customers buying the company's My Sky product grew to 529,000 as at December, with people continuing to migrate to it from the standard decoder.

But chief executive John Fellet said the loss of 8707 customers over the six months was a "disappointing" part of the results, although he said it wasn't unusual for this to happen in the July to December period.

He attributed the loss, in part, to the TAB shutting down its free-to-air channel in 2013, which led to Sky picking up some of its viewers who signed on for a 12-month period. Some of these customers disconnected during the six months to December as their contract wrapped up, he said.

In the year to last December Sky TV lost about 770 customers - a tiny fraction of its 856,000 subscribers.

Forsyth Barr analyst Blair Galpin said Sky TV would be keeping a close eye on subscription numbers, although there had not been any big sporting events during the half to attract customers.

On the other hand, the company had the rights to the Cricket World Cup during the present period and the Rugby World Cup in the following six months.

"The line-up for the last six months hasn't been as strong in terms of the sport side of things. So I think the test really comes through in the next six months. Can they reverse that trend [of customer losses] with quite a strong line-up of events that normally do drive demand? That's a critical test period for them," Galpin said.

Internet television and movie giant Netflix's launch next month was unlikely to have an immediate effect on the company's customer numbers, but was a "developing play", Galpin said.

As well as Netflix, Spark's Lightbox and Coliseum Sports Media are hoping to make inroads into Sky TV's dominant market position.

Sky TV has not been idle in responding to these upstarts, and this month launched its own online television and movie service, Neon.

The pay-TV provider is also upgrading its customers' My Sky decoders so these devices can connect to the internet and access on-demand content.

Reflecting this, the company's capital expenditure rose in the last half to $51.1 million from $47.4 million.

It plans to spend more in the present period, with capex for the year to June expected to sit between $115 million and $125 million.

Sky TV said its guidance for the full year was at the low end of the range it gave last October, with net profit expected to be between $170 million and $180 million for the 12 months.

See Sky's latest investor presentation here: