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Sky Network TV's share price rallied sharply today after the company produced a 22 per cent lift in its first half net profit and as investors appeared to shrug off any potential threat that Telecom might pose to its pay TV business.
The company reported a $82.1 million net profit, raised its earnings outlook for 2013/14, and increased its interim dividend payout to 14c from 12c.
Sky TV now expects to report earnings of $155m to $160 million for the full year, up from last October's guidance of $145m to $155m.
The improved financial position was primarily due to the continued success of My Sky - a service that allows customers to record programmes - as well as a fall in programming costs, which were abnormally high in the previous comparative period because they included the costs of the Summer Olympics.
Sky's shares finished at $6.08, up 33c from Friday's close after the morning announcement.
"Essentially the result is a good one because they have lowered their programme costs, which is a key element," Greg Fraser, senior investment analyst at Mint Asset Management, said.
Fraser said Telecom had made it clear that they did not intend to compete with Sky TV. "They (Telecom) are certainly not interested in chasing the key sporting content, which is the real basis on which Sky Tv's business is built," he said.
As it stands, Sky has New Zealand exclusive rights to the Super 15 rugby union competition and to All Black test matches.
"What they (Telecom) are looking at is a more expanded offering for the broadband and mobile phone customers. "It's something to make their customers more sticky to Telecom, but not necessarily with internet TV as a core product ," Fraser said.
The equivalent in Australia is Fetch TV, which some local telcos carry but which do not feature sport.
MY Sky subscribers now represent 56.7 per cent of Sky's subscriber base compared to 50.1 per cent in the previous comparative period.
Sky's gross churn - the percentage of subscribers that discontinue their subscription over the period - was 13.3 per cent, down from 14.6 per cent in the previous period.
Programming costs - which comprise both the costs of purchasing programme rights and also programme operating costs - fell by $13.5 million.
Telecom, which plans to change its name to Spark, said last week that it intended to enter the the internet television market.
Fraser noted that Sky had renewed its with relationship with Telecom's main opposition - Vodafone. "There is plenty of pushback from Sky in that regard, so they are certainly not going to rest on just being a video provider," he said.
Blair Galpin, equities analyst at Forsyth Barr, said a number of players were lining up to launch in the online tv area.
"There is a lot more interest in that space but there is no one (online) provider in New Zealand," Galpin said. "To me the winner will be the one who can provide the best content that can meet people's needs," he said.
- By Jamie Gray, APNZ business reporter