Sky TV's golden handcuffs: half-year net profit jumps 12.7% to $92.5m

Sky TV [NZX: SKT] has delivered a strong half-year net profit, up 12.7% to $92.5 million.

Revenue increased 1.8% to $465 million.

Its dividend was bumped from 14 cents a share to 15 cps.

A greater percentage of its subs are now on higher-yielding MySky HDi decoders jumped 8.8% to 529,000.

Programming costs, which comprise both the costs of purchasing programme rights and programme operating costs, increased by $10 million to $280 million, but mainly due to the higher cost of the cricket rights and the Commonwealth Games which were not included in the previous period rather than any content fight with the raft of new media contenders that have hit the market.

All up, the figures for the six months to December 31 look solid for the pay TV broadcast.

The question is: are they too good? With Sky TV raking it in from its satellite decoder business, will the board be sufficiently motivated to invest in new media platforms, or will it be too comfortable in its golden handcuffs?

Ten pages into Sky TV's interim report, there is a worrying sign for investors: total subscribers tipped from 865,055 six months ago to 856,348. And Sky's household penetration dipped from 48.7% to 48.3%. 

Churn increased from 13.2% to 13.7%.

Some of those customers can be lured back with deals and promos, others will never come back to traditional broadcasting.

Sky TV is not sitting on its hands. It increased its cap-ex from $51.1 million from $47.4 million in the six months to December 31 as it added internet capability to more decoders (as part of a far-reaching upgrade*) and it launched two contract-free broadband products: Netflix clone Neon and Fanpass.co.nz.

Yet the new broadband services have drawbacks, compared to local and overseas rivals, in video streaming quality and content (Neon) and price (Fanpass, which will cost close to $1000 a year it you choose all three of its Super Rugby, NRL and Formula One options; read NBR's report here).

Fine line
Streaming ondemand video is the way of the future. Sky is walking a line, trying to attract the broadband generation without cannibalising too much of its satellite business. But ultimately, there's only one way the market will go. Perversely, a weaker result today would have helped move Sky faster in the right direction.

Things are already accelerating, perhaps faster than some at Sky anticipated. Spark said last week its launch-year spending on Lightbox, initially pegged at $20 million, will now be $35 million. And Netflix NZ recently revealed more details of its March launch ...

ckeall@nbr.co.nz

Follow @ChrisKeall

* Fellet argues Sky TV's project to give all MySky decoders download capability, and upgrade all older decoders to MySky, dwarfs any other internet-related initiative. More on that when NBR runs an interview with the Sky TV CEO tomorrow.