Sky TV profit down 21 per cent; 27,897 subscribers exit

Sky TV's 21 per cent profit drop was better than the market was expecting, but there are still doubts over its long-term strategy, says a senior economic analyst.

Sky TV's profit dropped 20.9 per cent in the year to the end of June.

The pay TV company released its full-year results today, which showed a net profit of more than $116.3 million, down from $147.1m the previous year.

Chief executive John Fellet pointed to Sky's failed attempt to merge with Vodafone New Zealand, which was rejected by the Commerce Commission this year.

"I will not waste time lamenting over what I think was a flawed decision by the Commerce Commission," he said, adding that attempting to appeal the decision would be "torturous".

"However, as time went by it became apparent that we could action many of the opportunities and synergies through commercial agreements without the escalating costs of a merger. Some of these are in the market now, and you will see further proof points of the closer working relationship in the foreseeable future."

Sky's total revenue dropped to $893.5m from $928.2m on the same period last year.

Its total subscriber base also dropped, from 852,679 in June 2016 to 824,782 this year.

Its revenue decline resulted from a 1.9 per cent decrease in residential digital Sky earnings ($157.2m from $160.3m in 2016), a 4.2 decrease from My Sky ($567.9m down from $592.8m) and 3.7 per cent decrease in "other" subscription revenue ($82.2m to $79.3m).

Advertising revenue dropped 8 per cent and "installation and other revenue" 17 per cent.

Fellet said despite the internet opening numerous new business models for accessing content, traditional linear viewing was still the most dominant way people watched television and would remain so for some years.

"But what we are witnessing is a transition, and at Sky we are clear that VOD [video on demand] is the future. It is already the most disrupting force in television viewing.

"While now is not the time for a massive conversion of our core business, as a significant number of our customers still rely on our satellite-delivered service for their sports, news and entertainment, we are embracing the opportunity to compete in new media models."

He added that "piracy" had become Sky's biggest competitor and the company had been playing a "cat and mouse" game with pirates since the start of pay television.

"However, theft of service has become more sophisticated and commonplace at the same time. The big problem is the increasing ease by which pirated content is accessible."

He said there was also a trend of news media taking clips of the best parts of Sky Sport content and placing them on their websites.

"They do this without any compensation to the sporting codes or Sky," Fellet said.

At a presentation following the report's release, Fellet said the company was operating in "the most hyper competitive market" it had ever seen in New Zealand.

If one were to read newspaper articles about Sky "you'd think we were stuck in some kind of linear time warp".

"Nothing could be further from the truth," he said, pointing to My Sky's popularity and its increase in wifi compatible decoders, which were now being used by about half of their customers, as well as its new smartphone apps.

He said Sky's on-demand service Neon had seen a "huge" boost by gaining rights to broadcast Game of Thrones.

Fellet urged people to keep in mind that it had screened the Rugby World Cup last year when considering its drop in advertising revenue.

Despite its failed merger attempt, he said Sky's relationship with Vodafone was "as close as ever" and the companies were working on several projects together, which would be announced shortly.