A rough week for Sky TV in NZ. CEO John Fellet announced his intention to retire, the shares rose, then two days later the company revealed it had lost one of the sporting jewels of NZ broadcasting – the TV rights to the 2019 Rugby World Cup (for which the All Blacks are favourites, along with Ireland). The shares fell 7% to $A2.12.
Sky told stock exchanges on both sides of the Tasman that it was not the preferred bidder for the 2019 world cup rights. The competition is to be held in Japan from September through November 2019.
Sky has controlled those rights for years, along with the domestic All Black tests and the NZ coverage of Super Rugby – all three are considered to be the best TV assets in NZ broadcasting given the dominance of the All Blacks.
NZ media reports said Spark and Television New Zealand are understood to have agreed to put in a joint bid for the broadcasting rights, but would not comment on whether they had been told they had been successful. If that’s the case it is expected Spark would be likely to stream matches over the internet, with TVNZ providing free-to-air coverage.
When announcing his retirement on Tuesday, Mr Fellet said on that he thought Sky had a better than evens chance of keeping rugby rights for the next 15 years, but he clarified he was referring to Super Rugby. Media reports said Mr Fellet said the Rugby World Cup was not such a good proposition for Sky because the closing stages of the competition, when interest was highest, had to be shown free-to-air.
While the news of the loss hit the shares immediately, the loss of the rights may not be all that bad. But what it has done is confirm that Sky TV is on the slide. Falling subscriber numbers revenue and a profit rise for the first half of 2017-18 that came from lower costs, not higher sales or margins.
Interim dividend was halved from the 15 NZ cents a share interim for 2016-17 to 7.5 cents a share – the best indicator of the pressures on the company and its financial performance in the near future.
The loss of the World Cup rights is likely to produce a positive for the company for the December, 2019 interim results if the latest figures are any guide. Sky TV will incur lower costs (possibly offset by lower revenues from advertisers and subscribers). But in the December 2017 period, costs fell 8% thanks to lower prorgamming and capex (and subscriber acquisition costs). The company revamped some of its subscription offers in February to try and hold customers and stop them leaving. it is also talking to Netflix and Stan about integrating their offerings into the Sky TV offer and making it one bill (as Telstra TV does in Australia).
But the company is almost certainly facing a massive write down on the book value of itself because the interim result contained the warning of possible impairment losses ahead.
"During the period the Board also completed an assessment of the carrying value of SKY’s $1.4 billion goodwill asset. This assessment included the likely impact of the new pricing and packaging on future subscriber numbers, churn and ARPU. The Board believe the impact of these changes will be positive on the value of SKY but recognise there is uncertainty and any adverse changes in key assumptions around churn, subscriber numbers and ARPU could give rise to an impairment of goodwill. The Board will reassess the carrying value of goodwill at year end when there will be more evidence of the impact of the pricing and packaging changes on the key assumptions,” Sky Tv said in its February announcement.
