Sky stepping up in on demand world

Photo by Reuters.
Photo by Reuters.
Sky Television recognised the importance of the on demand content challenge and is improving its existing offering and launching new services.

This message is unchanged from a year ago but Sky has added more depth to its story. Business editor DeneMackenzie reports.

Sky Television is planning to have a strong online presence and having relevant on demand propositions for both satellite and online only subscribers continues to be a key strategy.

Forsyth Barr broker Suzanne Kinnaird said that was one of Sky's three key messages.

The legacy planning under way at Sky in no way suggested chief executive John Fellet was leaving. The company reiterated at its investor day last week the experience of its management. Given changes in the industry, and its upcoming capital programme, Sky was of the view an agile balance sheet, with no change to its dividend policy, was prudent, she said.

''The Sky share price has followed a bumpy road over the last 12 months, reflecting the uncertainty caused by the launch of competing on demand services into the New Zealand market.

''While we recognise any change presents a risk, we felt the market has overstated the near term impacts and underestimated Sky's ability to respond to this competition.''

Sky's share price had recovered significantly from $5.62 earlier this year, Ms Kinnaird said. Forsyth Barr had increased its target price to $6.80 per share. The shares last traded at $6.24.

Sky's target return from here was consistent with Forsyth Barr's expected market returns. Combined with the changing environment in which Sky operated, Forsyth Barr had downgraded Sky from outperform to neutral. Craigs Investment Partners broker Chris Timms said Sky was in a strong content position with most of the key sporting rights secured for many years.

In particular, rugby had been secured for five years and cricket for six years, along with the Rio Olympics, the next two Fifa world cups and netball for two years.

The trade off was an increase in programming costs for 2016 to 35% of revenue. Key studio rights included HBO for five years and a new and expanded Disney deal.

In the next six months, the focus would be executing the EPG (electronic programme guides) upgrade and internet capability for MySky to allow for delivery of on demand content, he said.

Sky was starting to leverage its core content position by building out its presence in the ''over the top market'', which appeared to offer a different demographic, typically a younger audience, to its traditional base.

Key initiatives included Neon and relaunching FanPass to allow access to Sky Sports channels through day and week passes, similar to Sky UK's Now TV.

''The open question is how much cannibalisation this may bring in the future, albeit there is limited evidence to date from offshore case studies.''

The surprise was Sky entering broadband through a wholesale deal with Vodafone, Mr Timms said. Sky customers would receive a $10 a month discount if they took an 80GB or unlimited data plan with a home phone on a 12 month term.

Sky could customise the pay TV part of the bundle and take the sales call lead but Vodafone would manage the technical provisioning and installation. At the end of the first half of the 2015 financial year, 14% of the Sky base was already being bundled by Vodafone with its fixed line products.

It seemed a logical extension for Sky now that it was providing more online product, he said.

In Ms Kinnaird's view, a further development in the relationship would be for Vodafone to eventually offer a sports package utilising Sky's sports content, creating a significant point of differentiation from Spark.


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