Sky braces for merger decision

Sky Network Television, which is awaiting a decision from the Commerce Commission on a proposed merger with Vodafone New Zealand, posted a 32 per cent drop in first-half profit as content costs increased, and revenue and subscriber numbers fell.

Profit slid to $59.3 million in the six months ended December 31, from $87.1m in the year earlier period, the Auckland-based company said.

Revenue dropped 3.7 per cent to $458.2m while operating expenses gained 4.6 per cent to $308.3m.

Sky TV reiterated its forecast for earnings before interest, tax, depreciation and amortisation (ebitda) for the year ending June 30 to be 5 per cent to 7 per cent below the $296m forecast it gave last June, compared with ebitda of $325m last year. The company said yesterday that ebitda in the first half of its financial year fell 17 per cent to $149.9m.

The pay-TV operator is looking to team up with telecommunications company Vodafone as it faces increased rivalry from online stream- ing video services such as Netflix and Spark New Zealand’s Lightbox.

Still, it retains rugby rights, which are seen as a linchpin in securing domestic viewers. Its costs to secure programming rights jumped 12 per cent to $181.6m in the first half, mostly due to higher costs to secure rugby rights and the 2016 Summer Olympics, while subscriber numbers fell 5.2 per cent to 816,135.

“This digital disruption has ... brought a massive increase in the supply of additional viewing options for consumers and spending options for advertisers. Yet without much increase in overall demand,” said Sky TV chief executive John Fellet.

“Since Sky has the lion’s share of the New Zealand subscription television customers, it faces the biggest challenges.”

The Commerce Commission is scheduled to release its decision on the merger today, and Fellet said that the regulator’s decision will have a greater long-term impact on the value of a shareholder’s investment in the company than today ‘s first-half earnings release.

Sky TV will pay a dividend of 15c per share on February 22, unchanged from the year earlier period.

Spark New Zealand and 2Degrees have been granted a stay on the proposed merger between rival Vodafone New Zealand and pay-TV operator Sky Network Television to consider their legal options.

If the Commerce Commission clears the merger today, it won’t come into effect immediately, giving the opposing parties time to read the reasoning behind the decision and decide whether they will pursue a legal challenge.

The commission delivers its decision today but not the detailed reasoning behind it, which will follow later.