Sky NZ Sheds Pay TV Subscribers
It’s not just Australia where Pay TV is under growing financial pressure (for example, Foxtel lost around 100,000 subscribers over 2016-17 and earnings slumped as costs rose and the company was forced to write off more than $140 million in losses on the Ten Network shareholding adventure and its Presto streaming service). Foxtel’s former News Corp stablemate, Sky TV, across the Tasman, is experiencing a similar situation.
Sky TV said Tuesday (https://skynz.akamaized.net//documents/24003/5165080/Sky_Annual_Results_2017.pdf/e18d1d06-bf00-4619-9964-964e1ddc3304) that annual profits have dropped by 20% as it lost almost 34,000 satellite subscribers (around 5% of total subs).
Sky was 44% owned by News Corp which abandoned it in March, 2013 before the split in the Murdoch media empire in June, 2013. Yesterday the pay-TV company reported a 21% drop in net profit to $NZ116 million for the year to June, with revenues down almost 4% to $NZ893 million.
Sky’s number of satellite TV subscribers fell to 705,652 at the end of June, down 33,800 over the year, and since the end of 2015, it has lost 154,813 satellite subscribers, a drop of 18%. Satellite subscribers are the core group of customers for the company. Sky also has just over 79,000 OTT subscribers (non-subscribers who buy one off passes to watch sport and other programs). Unlike Australia where Foxtel and News blames the sports anti-siphoning list for its weak performance so far as subscriber numbers are concerned, Sky TV has control of NZ broadcasts of the All Blacks, which should be like printing money. But clearly it isn’t. Profit dropped 20% to $NZ114 million on a 3.7% fall in revenue to $NZ893 million.
The weak results confirm why Sky wanted to merge with Vodafone NZ, a deal that was knocked off by the country’s competition regulators. Both companies decided to challenge that ruling, then dropped it for no apparent reason, despite talking up their chances of reversing it.
Co-incidentally Vodafone NZ revealed its 2016-17 results on Monday, reporting a $NZ40 million which was better than the $NZ18 million loss from the previous year. But the improvement was due to a $NZ36 million cut in financing costs (interest and fees) after the UK parent injected more money into the company and reduced the interest rate the NZ arm pays the parent on internal loans.
That is a classic way of shifting profits by multi-nationals. Interestingly, Foxtel has a similar structure with shareholder loans from News and Telstra.
Those loans totalled $962 million at June 30, up from the $902 million at the end of June 2016 - a figure that had remained constant from when the money was used to help finance the takeover of Austar in 2012. That loan had a high interest rate of 12%, cut to 1.5% in June 2016 as Foxtel’s finances worsened. The higher 12% rate used to see $108 million distributed to News and Telstra, as well as regular distributions from cash flows.
But in the year to June 30,2017 (when the new 10.5% rate applied), Foxtel only paid $35 million in total to News and Telstra, with the other $59 million of interested capitalised and added to the loan, pushing the amount owed up to $962 million. Foxtel also abandoned distributions to both shareholders - three years ago those distributions had totalled $250 million.
It seems the financial pressures on Pay TV are similar on both sides of the Tasman.
News and Telstra want to break up their ownership structure with News selling Fox Sports into Foxtel and taking a 65% stake (with Telstra holding the remaining 35%).
Telstra wants to quit its stake in Foxtel and it wouldn’t surprise if its 35% stake is floated off to the market, perhaps with some of News’ holding.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.