Video on demand critical for Sky TV, say analysts

Sky Television. Photo/Paul Estcourt

Sky Television needs to focus on its video-on-demand offering to keep customers and maintain its company value, says Australian analyst Morningstar.

The research firm predicted the pay TV company would lose two per cent of its traditional customer base per year for the next five years, however it has forecast this will be offset by its growing subscription video-on-demand (SVOD) customer base.

SVOD customer numbers are expected to increase to 176,000 in the next five years, boosting Sky TV's total subscriber numbers to about 838,000 by 2022 - slightly up on its current subscriber base of 825,000.

With fibre being rolled out across the country, there was no reason New Zealand could not replicate the US model of unduplicated video-on-demand reaching 50 per cent market penetration in five years time, Morningstar said.

"This would imply [an] additional 315,000 potential new households for the existing SVOD players, and our 176,000 subscribers for Sky in five years' time would represent a market share of around 20 per cent," it said.

Morningstar's forecast losses of two per cent would represent a significant improvement from Sky TV's loss of almost 34,000 satellite subscribers in its last financial year.

Sky chief executive John Fellet earlier said "now was not the time for a massive conversion of its core business" to a video-on-demand model, however the research firm said Sky needed to be significantly more aggressive in expanding beyond the traditional pay TV set-top-box, and become a platform-agnostic content distributor.

"The key to this lies in leveraging Sky's comprehensive stable of content to beef up its SVOD products, and marketing them more actively to streaming-hungry Kiwi consumers," Morningstar said in its research note.

"It is imperative that Sky actively plays in this [SVOD] space as a subscriber retention move, as traditional satellite-delivered pay-TV services are structurally destined to be challenged."

Sky TV CEO John Fellet. Photo/supplied

It suggested Australian pay-TV company Foxtel could be interested in acquiring Sky TV, if Foxtel listed on the Australian stock exchange later this year.

Speculation was also intensifying around rumours online giant Amazon may bid for the rugby broadcasting rights when Sky's contract for this expired.

"The five-year rugby rights to Sky expire in 2021 and the process for the rights from 2022 will begin in April 2018," Morningstar noted.

"An early start we believe has been designed to provide Amazon plenty of lead-time to prepare the infrastructure if it wins."

Sky TV did not wish to comment.

Morningstar attributed a fair value on the ASX of A$2.70 for Sky shares - slightly above its closing price on Friday of A$2.61.