ForBarr’s Aaron Ibbotson and Benjamin Crozier see Sky “more exposed to the softening economy than it has been historically”.
Like other analysts, they rate its digital transformation a success overall, but also note the new composition of Sky’s customer base could be more susceptible to recession because around half of its customers are now on “less committal” streaming plans. Returning a Sky Box is a hassle, hitting the cancel icon on Neon or Sky Sport Now less so (although the situation is shaded by the latter having a mix of weekly, monthly and annual passes).
Similarly, the pair will be looking closely at Sky’s advertising revenue in the second half of the financial year just closed – and its outlook for the year ahead. Sky has recently put a lot more emphasis on ads, with a reboot of its free-to-air Prime as Sky Open and the introduction of ads to Neon – but, again, it potentially increases exposure to a slowing economy.
On the plus side, Netflix, Disney and Amazon Prime have not launched their cheaper, ad-supported plans in the (for them) tiny New Zealand market.
Ibbotson and Crozier expect a “mixed scorecard” on Wednesday with success in streaming offset by higher programming costs.
Deliver at the top end of guidance
Craigs’ Rob Morrison is more upbeat. He sees weakness in Sky’s Sky Box (and new Sky Pod) offset by growth in streaming “with notable strength from Sky Sport Now” helping to drive what he predicts will be a 3% rise in revenue which, in turn, “indicates Sky is likely to deliver at the top end of guidance” of its forecast $45-55 million net profit range. He’s picking $52m.
Paris bounce?
The Paris Olympics – which turned into something of a gold medal bonanza for New Zealand – took place after the first-half closed. But Ibbotson and Crozier will be listening for any comments on the size of any bounce from the event – and any hints on how many bought the $35 Olympic Pass – and, more keenly, how many have converted to regular subs.
Rugby deal expected by year’s end – and it could be catalyst for share price jump
Keeping with sport, the next round of rugby rights is also looming large on the horizon as Sky’s five-year, reported $535m deal with New Zealand Rugby (NZR) signed in 2020 draws to a close.
Analysts will be looking for signs of how Sky is navigating the new terrain.
Spark Sport is gone – an out-and-out positive – while NZR and its new media-focused investor Silver Lake have eyes on expanding its NZR+ streaming platform, which could go either way for Sky.
If Sky loses its All Blacks and Super Rugby Pacific exclusivity – and some matches are also shown live on NZR+ via a pay-per-view fee – that is not necessarily a negative for Sky, if it gets a much cheaper five-year deal. The pay-TV broadcaster backs itself to remain the home for most fans with the convenience of its new Sky Box being a one-stop-shop.
Chief executive Sophie Moloney has already said she’s comfortable with what frames as “co-exclusive” deals.
Craigs’ Morrison is bullish about how it will play out.
“With local competition driven from the market, we expect Sky to secure key rugby rights at a competitive price before the end of the calendar year,” he says.
“With increased certainty around limiting near-term churn [subscriber loss] and opex [operating expenses], this announcement could be a significant catalyst for the stock.”
The exit of Spark Sport also means Sky will have more power to monetise renewed rugby rights (although it’s also worth noting that after Sky’s first-half result, which included price rises for sport, Jarden’s Arie Dekker noted there could be a point where further price rises sparked some customers to pull the plug).
New competition?
A wrinkle is that TVNZ is now positioning itself for possible paid content and more of a push into sports rights – but the state-owned broadcaster could face political blowback if it gets into an expensive bidding war with Sky.
The threat of HBO launching its Max app directly into the NZ market still lurks – as it has done since HBO first started selling direct-to-the-customer subscriptions in the US in May 2020 (HBO’s app was rebranded as Max early last year).
The thinking in some quarters is that it might stand more chance now that Warner Bros. Discovery has a larger presence in NZ through its ownership of Three. But the struggling US firm will, as ever, be weighing whether it could make more money through another deal with Sky. And the Newshub closure illustrated WBD’s focus is very much on the near-term bottom line.
Those big US writedowns
US media firms have been in the headlines this month, with Warner Bros Discovery writing off US$9 billion ($14.98b) of the value of its cable channels, including CNN, HGTV and the Food Network, as more and more consumers “cut the cord” – and Paramount slicing US$6b from the valuation of its pay-TV stable, which includes MTV, Nickelodeon and Comedy Central.
On the flipside, there was some good news as Disney turned its first-ever profit from its streaming operation, which includes Disney+, Hulu and ESPN+ (often sold as a single bundle in the US) – albeit a slim one.
Here, Sky has already gone through $360m in write-down pain at the tail end of the John Fellet era, and has gone through cost-cutting, restructuring and offshoring, with its now largely complete transformation to a digital-first company. None of our analysts are picking a Warner Bros Discovery-style slash on Wednesday.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
