Sky TV’s future hanging in the balance: analyst
SKY Network Television should hope for the best but plan for the worst, Morningstar analyst Brian Han says.
The network television provider’s future could be as a standalone entity, if it could maintain its stranglehold on premium sports rights and augment them with other compelling entertainment such as Game of Thronestype programmes.
It could then monetise them widely across all telecommunications providers, he said.
Morningstar cut its fair value estimate for Sky by 7% to $4.10 a share as it expected the current operating weakness to persist in the near term. Morningstar expected group 2017 operating earnings to be down 22% to $263 million, below management’s guidance of $275 million to $281 million.
‘‘More importantly, Sky’s strategic future is hanging in the balance post the New Zealand Commerce Commission’s decision to not clear the proposed merger with Vodafone New Zealand.
‘‘While the parties have appealed against the determination to the High Court, Sky needs to prepare for a possible life as a standalone pay TV entity in the rapidly evolving entertainment/communication landscape, as opposed to being part of a ‘triple play’ juggernaut.’’
Mr Han said there was a future for Sky as a standalone entity. However, the $4.10 per share assessment assumed man agement stepped up efforts to expand beyond the settop box to become a platformagnostic content distributor, and further strengthen its content arsenal.
That would necessitate a softer stance on pricing. Morning star’s average revenue per user per month forecast was set to fall 1%, compounding over the next five years, versus a 3% per year average increase over the past six years, he said.
While giving up ‘‘juicy legacy profits’’ was always difficult, Mr Han believed the strategy of more competitive product pricing, combined with aggressive content acquisition, had the best chance of stabilising Sky’s subscriber base and fending off broadband-fuelled competition from the likes of Netflix.
Shares in Sky were trading at an 11% discount to Morningstar’s revised fair value estimate.
Not only was the marking giving Sky very little chance of succeeding in its court challenge to resuscitate the proposed merger with Vodafone, but, contrary to the view of Morningstar, it also appeared to be more pessimistic about Sky’s future as a standalone company, he said.
The pessimism overlooked Sky’s stable of premium sports rights, which included rugby, National Rugby League, cricket, netball, Olympic Games and Rugby World Cup — events to which Sky held exclusive New Zealand broadcast rights until between 2020 and 2022.
A Sky TV will not today be broadcasting the naming of the All Blacks squad to play the British and Irish Lions team later this month.
❛Sky needs to prepare for a possible life as a standalone pay TV entity in the rapidly evolving entertainment/ communication landscape❜
— Morningstar analyst Brian Han