TiVo no threat to Sky, broker believes

The decision by Television New Zealand to introduce TiVo for paid internet television downloads is unlikely to hurt Sky Network TV, Forsyth Barr broker Peter Young says.

TVNZ has bought a 33% stake in the exclusive Australia and New Zealand TiVo licensee, Hybrid Television Services, before the device's launch in New Zealand later this year.

TiVo allows viewers to record programmes, pause and rewind live TV and watch movies on demand on all free-to-air digital TV channels, and access broadband content, services and games.

Mr Young said Forsyth Barr had reviewed the pricing of TiVo in Australia and the United States and concluded that TiVo was "relatively expensive".

"TiVo is a great product but it is relatively more expensive than Sky TV's Mysky HDi.

"We have also reviewed and compared the pay TV pricing packages for Sky, Foxtel, Austar and BSkyB, and conclude that Sky's customers obtain better value than its global peers."

However, part of that would be indexed to New Zealand's lower household disposable income.

The key point was that despite Sky having a monopoly pay-TV position in New Zealand, its pricing and product offering stacked up well, he said.

The introduction of TiVo to New Zealand was inevitable, as it provided Freeview with a reliable and proven PVR (personal video recorder) for households who did not want to subscribe to Sky.

"While TiVo is a great product, it will have limited appeal in Australasia, because it is relatively expensive compared with the pay TV PVRs offered by Sky, Foxtel and Austar.

"There is very little scope for TiVo to offer integrated programme guides for the pay TV companies in Australasia, and therefore the channel offering will be limited to free-to-air channels."

In Australia, the pricing of TiVo was $A38 ($NZ46) a month for three years.

The clear benefit of TiVo was, for households who did not want to subscribe to pay TV, access to sophisticated programme guides and PVR for free-to-air channels listed.

In Channel Seven's case, in Australia, TiVo offered 12 high-definition channels.

The pay TV companies had an advantage over TiVo because the channel offering was much larger, and the PVRs were offered as part of the pay TV package, and therefore were less expensive.

There was an added feature that the PVRs were effectively a product for life, and when the PVR needed replacing in the future, the cost of replacement rested with the pay TV company.

However, when the TiVo PVR needed replacement outside its warranty, the customer would need to buy a new TiVo.

Mr Young said the Government had indicated it was unlikely to regulate Sky, which he believed was a logical and fair decision.

TVNZ had been operating with a view that regulation would help it preserve its market power and reduce the pace at which it was losing viewership share to Sky and TV3, and its dominant share of advertising spend.

"We believe the current market structures for pay TV and free-to-air broadcasters to co-exist profitably in New Zealand were positive for consumer choice, and regulating Sky to limit content choice would have been negative for the market over the long term," Mr Young said.

The future for free-to-air broadcasters would be to extend broadcasting via the internet, offering alternate channels via Freeview and developing additional revenue beyond core advertising sources, he said.

The introduction of a TiVo-type product would provide opportunities for the free-to-air broadcasters (TVNZ and MediaWorks) to begin offering value-added services.

A semi-subscriber business model would emerge from the core free channel offering.

If the free-to-air broadcasters did that well, greater competitive pressure would be placed on Sky's pay TV model.

Forsyth Barr believed Sky had a good business model and favourable medium-term outlook to continue to grow at modest rates.

Profitability was forecast to resume double-digit earnings per share growth in 2010.

Sky was trading on a gross dividend yield of 5.3% and 30% discount to valuation of $5.42.

"Sky's earnings should prove resilient in the current recessionary conditions and [it] has attractive long-term growth prospects," Mr Young said.