Earnings before interest, tax, depreciation and amortisation are forecast to fall about 6% to $286 million, down a further 6% in 2018 to $279 million and another 3% in 2019.
Forsyth Barr broker Suzanne Kinnaird said churn from both Sky’s satellite base and its online offering had been higher than forecast. While a significant proportion of the subscriber loss related to churn from over-the-top customers, they were significantly less valuable than satellite customers.
Sky also indicated the delay in Commerce Commission approval to merge with Vodafone had meant bundled offers with telecommunication companies had stalled and were lower than initially forecast.
"While Sky TV is facing an issue with falling subscriber numbers, we have a larger concern. Sky TV has had to significantly increase its forecast content. We estimate that has moved up by about $13 million."
Content was one area Sky TV should have greatest visibility on and have allowances for winning new content, Ms Kinnaird said.
The British and Irish Lions tour next year was also a known event and correctly forecasting production costs should be a given.
That drew into question management focus during the merger process.
Forsyth Barr now forecast programming and content costs would reach 40% of total revenue in the current financial year as Sky TV continued to face the challenge of acquiring rights — such as mobile and on demand — it was unable to monetise, she said.
A stand-alone Sky TV had a very different road ahead than the merged telco-content provided the Vodafone-Sky TV merger envisaged.
The merger would provide new services for consumers and it should aid content monetisation for Sky TV and lead to both reduced churn and increased customers for Vodafone, but not market domination.
The challenge, if commission approval was given, was finding solutions for which those customers churning from its satellite service were willing to continue to pay.
Forsyth Barr had reduced its target price by 33c to $4.95 a share and maintained an outperform rating. Uncertainty underpinned the high risk rating, Ms Kinnaird said.
Key drivers
• Merger with Vodafone New Zealand.
• Retention of satellite customers.
• Supporting revenue growth through My Sky.
• Increasing content competition.
