Sky result overshadowed by the stay on merger

Suzanne Kinnaird.
Suzanne Kinnaird.
Sky Network Television's profit slump for the six months ended December was overshadowed by Spark and 2degrees being granted a stay on the proposed merger between the pay-TV company and Vodafone NZ.

If the Commerce Commission clears the merger this morning, it will not come into effect immediately, giving the opposing parties time to read the reasoning behind the decision and decide whether they will pursue a legal challenge.

''I have concluded it is appropriate in the present case to make an order staying the effect of any clearance decision for a short period in order to enable the applicants to consider their options,'' High Court Justice Graham Lang said.

''The transactions have the potential to directly affect consumers in the markets affected by the commission's decision. There is, therefore, a significant degree of public interest in the outcome of the clearance decision. As a result, there is also public interest in ensuring that the decision-making process has not miscarried in any material way.''

The parties have until midnight on the third day after the regulator delivers its decision to file for judicial review. If they do, Sky TV and Vodafone will be unable to merge until further court orders are made.

Sky posted an operating profit of $87.6million for the period, down 26% on the $131.7million reported in the previous corresponding period.

The reported profit of $59.5million was a slump of 32% on the $87.3million reported in the pcp. Revenue fell 3.6% to $458.2million.

Despite the lower profit, Sky TV maintained its current dividend policy and will pay an unchanged interim dividend of 15c per share.

Subscriber numbers in the period fell 5.1% to 816,135.

Forsyth Barr broker Suzanne Kinnaird said the result was better than expected, driven by assumed subscriber mix.

''The reality is, the Commerce Commerce decision on the Sky-Vodafone New Zealand merger due at 8.30am [today] is the current focus and the stock will trade in line with the direction of that decision.

''What this result does, is reinforce the continuing challenge Sky TV has, with content costs now reaching 39% of revenues.''

In addition to the commission clearance, Sky TV and Vodafone NZ would also require approval from the Overseas Investment Office. The sale and purchase agreement allowed 15 days, after the conditions had been met, for the merger to be completed. That required both the issue of new shares to Vodafone Group and the payment of the cash component of the acquisition.

Sky TV chief executive John Fellett said the company did not break out the categories of subscribers for competitive reasons but in his annual letter, he disclosed the bulk of net subscriber gains came from internet-delivered services such as Fan Pass and Neon. Likewise, in the December figures, Fan Pass and Neon accounted for more than half of the loss.

For several reasons, such as high churn rates, Neon and Fan Pass were not as profitable as traditional Sky subscribers. The subscriber gains last June and the subscriber losses in December, while still important, did not affect the company as much as if they were traditional subscribers, he said.

Ms Kinnaird said Sky TV faced increasing challenges to retain and grow its subscriber base and revenue. The merger with Vodafone NZ had the potential to radically move the focus of the business to opportunities in telecommunications.

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