Sky TV boosts annual profit 6.4%, reaps more revenue from fewer subs

UPDATED: Sky Network Television [NZX: SKT], New Zealand's dominant pay-TV company, boosted annual profit 6.4 percent as it reaped more revenue from fewer customers.

Net profit rose to $171.8 million, or 44.09 cents a share, in the year ended June 30, from $161.4 million, or 42.61 cents, in the year earlier period, the Auckland-based company said in a statement. Revenue increased 2 percent to $927.5 million. The result was lower than the $177.7 million profit and $930.7 million revenue expected by analysts in a Reuters poll.

The company's shares fell 3 percent to $5.46, and have shed 6.8 percent so far this year.

Sky increased its average monthly revenue per residential user 2.6 percent to a record $79.54 as the number of subscribers using its higher value My Sky service rose 9 percent. Still, a 20 percent decline in subscribers to its legacy digital service saw overall customer numbers drop 1.6 percent, pushing its share of the nation's households to 47.1 percent from 48.7 percent. The company is spending $120 million over three years to upgrade its digital boxes to My Sky decoders, which will enable access to new 'video-on-demand' services that it is hoping will lure new customers.

"The challenge we are now seeing is in attracting new customers," said chief executive John Fellet. "That's why we are branching into these new services."

Fellet, who has headed the company for 14 years, said the rollout of ultra-fast broadband was more of an opportunity for the company than a threat. Local rivals sending content through the fast-internet service include telecommunications company Spark New Zealand and online sports broadcaster Coliseum Sports Media, as well as overseas rivals such as Netflix, Quickflix and Ezyflix.

"Investors are a little bit wary of the competition that Sky is facing going forward," said Grant Williamson, a director at brokerage Hamilton Hindin Greene in Christchurch. "It's tough going for that company that pretty much held a monopoly position for quite a few years."

To drive future growth and attract a younger generation to its service, Sky is investing in other models outside its traditional pay-TV service, such as short-term sports subscription service FanPass, low-cost pay-TV service Igloo, mobile service Sky Go, and subscription video-on-demand service Neon. The company said it expects to leverage some of its existing content rights into new business models for marginal extra costs.

Fellet said the company is focused on securing the most important content to lure customers. It has renewed and acquired rights to exclusive premium content including long-term rights with Disney, Discovery, HBO, New Zealand and Sanzar Rugby, and New Zealand cricket and netball.

That meant programming costs rose 5.9 percent to $296.6 million, taking it to 32 percent of revenue from 30.8 percent of revenue the year earlier, and the company said the cost is set to increase further in future years.

The company will pay a final dividend of 15 cents a share on Sept. 11, unchanged from the year earlier. That takes the total annual dividend to 30 cents, up from 29 cents the previous year.

(BusinessDesk)