Sky is investing £100m in dramas to keep pace with Netflix and the insatiable demand for box sets
‘Premier League remains fantastic, it is important but it is increasingly only one part of the mix’
SKY will increase its budget for dramas by a quarter this year in an effort to keep pace with heavy spending by Netflix and Amazon, and capitalise on strong international appetite for box sets.
The extra cash, taking the total to more than £100m, will mean the paytelevision operator will debut four original series on its channels every quarter. Sky, which has relied heavily on HBO’S fantasy epic Game of Thrones to attract box set fans, said it had a hit on its hands in Riviera, a crime thriller. It has been Sky’s most popular in-house production to date, drawing more than two million viewers.
Sky announced higher drama spending alongside its annual results, which showed the impact of an 83pc increase in its Premier League rights bill. Operating profit was down 6pc to £1.5bn as Sky’s ruthless cost cutting was not able to fully match the £629m extra it paid for top-flight football. A £51m investment to enter the mobile market added to the pressure on the bottom line as 21st Century Fox’s £11.7bn takeover stumbled over regulatory hurdles.
The results also revealed £56m in costs related to the Fox takeover, with £16m of that going to advisers, and the rest going on “share-based payments” that rose because of the increase in the share price spurred by the bid.
Sky suffered the decline despite a 5pc increase in like-for-like revenues to £12.9bn, driven by price increases and new products. Jeremy Darroch, the chief executive, said operating profit returned to growth in the final quarter of the year and highlighted that Premier League costs will now be flat. The operator struggled to bring churn – the measure of how many customers leave its core satellite service – under control. The figure for the UK market was 11.5pc, down 0.1 percentage point since December, when Sky blamed broadband competition and said it was working to improve loyalty.
Mr Darroch said churn was still higher than he wanted and that he hoped a new loyalty scheme, due to launch in the next few weeks, would improve matters. He said there was no sign of the structural decline of satellite as people shift to cheaper options such as streaming and BT TV, but highlighted “more movement between platforms” and intense competition.
Fox is awaiting a referral of its takeover of Sky to merger watchdogs by Karen Bradley, the Culture Secretary. Having originally hoped to complete the deal this year, fears over increased Murdoch control of the UK news market as a result of the takeover means it is now expected to drag on into 2018.
Mr Darroch and Andrew Griffith, chief operating officer, are to cash in shares worth millions in the meantime, after Fox agreed to free them from a lock-up clause in the takeover agreement. Mr Darroch said Sky’s increasing confidence in original drama gave it more options when it faces off against BT and others.
He said: “Premier League remains fantastic, it is important but it is increasingly only one part of the mix.”