Sky TV first-half profit falls 5.8% as competition drives up content costs

UPDATED: Sky Network Television [NZX: SKT], the pay-TV operator under threat from online rivals, posted a 5.8 percent decline in first-half profit as the cost of securing content rose in an increasingly competitive market. The shares fell.

Net profit dropped to $87.1 million in the six months ended Dec. 31, from $92.5 million a year earlier, the Auckland-based company said in a statement. Revenue rose 2.4 percent to $475.6 million as the broadcaster expanded its subscriber base 0.5 percent to 860,445 at a higher average revenue per user rate of $79.56. The company's customer churn rate increased to an annualised rate of 15.4 percent as at Dec. 31, from 14.5 percent at June 30. 

The shares fell 2.2 percent to $4.50, having increased 0.2 percent so far this year. The stock is rated an average 'hold' based on seven analyst recommendations compiled by Reuters, with a median target price of $5.10.

Forsyth Barr analyst Blair Galpin was forecasting profit to fall to $84.1 million on sales of $470 million. 

The results come as Sky TV loses its hold on premium content with the introduction of online streaming video services such as Netflix and Spark New Zealand's Lightbox offering. Still, the pay-TV firm retains rugby rights, which are seen as a linchpin in securing domestic viewers, and contributed to a 10 percent increase in programming costs to $162.9 million. 

“As expected in a period of rapid change and considerable competition, pressure has been placed on financial performance,” chief executive John Fellet said. “Like most traditional pay-television companies, we are losing traditional satellite customers, but gaining in our online products like Neon and Fan Pass.”

Sky TV provided less detail about the breakdown of its subscriber base, which it said "hurt us in negotiations with content suppliers". It's rolled out new web-based on-demand services, and expects to complete a programme of switching out old digital decoder boxes for new My Sky decoders by the middle of next year, which it anticipates will provide savings on its satellite bandwidth spend. 

Capital spending rose 21 percent to $62 million, almost half of which went on Sky TV's decoder upgrade. 

Revenue from satellite subscriptions increased 0.7 percent to $383.5 million, accounting for the bulk of Sky TV's sales, though other subscriptions revenue climbed 11 percent to $38.8 million. 

Sky TV's advertising revenue generated the fastest increase in the half, rising 17 percent to $42.3 million, and now accounts for 8.9 percent of total revenue compared to 7.8 percent a year earlier. That's in a market where television advertising is sinking, with free-to-air players Television New Zealand and MediaWorks bearing the brunt of the decline. 

The board declared a dividend of 15 cents per share, with a March 11 record date, payable on March 18. 

Sky TV has also hired an investment bank to look at its capital management as it ends a period of investment, which it expects will deliver strong free cash flow in the future. At the same time, it's considering several investment opportunities, it said

"The amount and timing of any capital required for growth opportunities is expected to become clearer by the time our full year results in August are announced," Fellet said. "If growth opportunities do not materialise within that timeframe, we intend to announce capital management initiatives with our full year results."

(BusinessDesk)