Sky tackles rugby rights
Sky TV more than tripled its net profit to $39.6 million for the first half-year as it chiselled down costs, and saw a gain in total customers as its streaming services grew more quickly than its satellite business declined.
But talking to the Herald soon after the result, new chief executive Sophie Moloney skipped past any premature celebration to focus on the challenges of the second half.
“The headline result is good, but we need to do better,” she said. “Bringing costs down and stabilising revenue [which fell 7 per cent in the first half] will be absolutely critical.”
As Moloney surveys the cost landscape at Sky, one item will stand out more than any other: Her company's new five-year rugby rights deal with Sanzaar — signed back in November 2019, but which kicks off with the season about to get under way.
Sky has never publicly put a price tag on the deal, but in September 2019 it sought shareholder approval to enter a contract worth something more than $235m with Sanzaar for five-year rights to All Blacks, Super Rugby and Mitre 10 Cup games from 2021.
The Herald understands Sky ultimately paid $400m, or a 20 per cent increase over its previous contract, as then Sky chief executive Martin Stewart sought to try to repel Spark's incursion into sport.
Now Stewart's replacement, Moloney, has to pay the piper.
But the Covid-ravaged, domestic rugby-focused world of March 2021 looks a lot different to the world of November 2019, when the deal was inked.
And while Sky is thankful that Super Rugby Aotearoa and other localised, slimmed-down rugby competitions are taking place, it's not what it signed up for.
Stewart talked openly about a possible clawback, citing British broadcasters' bid to get back some of the £330m ($635m) in coverage rights paid to the English Premier League for the interrupted season that ultimately wound up in July last year. Results of the talks were never made public, but sources told the Financial Times that the Premier League agreed to return £170m to Sky UK.
Moloney was more reserved in her comments yesterday, but did say she met with NZ Rugby last week, when the issue was on the table.
“You'll appreciate conversations with a partner are always confidential,” she said. “But yes, we are in a conversation about what are those impacts on value for this year in terms of the nature of the competitions.”
So it's possible Sky will pay less than it agreed to in November 2019?
“Yeah, we're working through that with NZ Rugby,” Moloney said.
“And of course we're mindful of the health of the game in New Zealand — which is where the Silver Lake interest comes in.
“We're looking on with interest and that's part of the conversation we're having. We're working through the impact with the parties.”
Silver Lake is the $200 billion US investment fund that is said to be in talks to buy a 15 per cent stake in NZ Rugby for $465m (big money by local standards, but not against previous investments by the American fund as it has taken slices of the UFC, New York Knicks, Manchester City and other high-profile teams and franchises).
Some pundits have feared Silver Lake will only be concerned with boosting the value of the All Blacks as a global brand, potentially at the expense of grassroots rugby.
But Moloney hints at a potential win-win situation where Sky claws back some of the huge contract, but the loss to NZ Rugby is more than compensated for in fresh funds from Silver Lake.
Analysts canvassed by the Herald were split on the impact of Silver Lake's potential investment in NZ
Rugby. But two – Craigs Investment Partners’ Wade Gardiner and Jarden's Arie Dekker — saw it as tipping the SkyNZ Rugby power balance in the union's favour. Gardiner saw a Silver Lake investment undermining Sky's already wobbly Rugby Pass global streaming service. He saw NZ Rugby instead looking to the well-connected Silver Lake to leverage its streaming and social media contacts to increase its international exposure.
Sky bought RugbyPass in 2019 in a deal worth up to US$40m ($54.64m), including up to US$10 in earn-outs. Last year, Sky wrote down its carrying value from $38.4m to $10.9m, noting the global service had incurred some $14.5m in accumulated losses with “no material synergy benefits to date”.
There was no word on its paying subscriber numbers, which its previous owner had told the Herald were under the 20,000 mark.
Moloney would only say that Sky
would make a major announcement about Rugby Pass in the next few weeks.
Price increases ahead?
Sky could also stabilise its revenue by increasing prices.
On an analyst conference call yesterday, after it was noted that average revenue per user per month was falling (see table at right), Moloney said prices increases were on the table — if only at some point after the end of this financial year (June 30).
“We haven’t done a price increase for some time,” Moloney said.
“Given the way 2020 unfolded, we felt last year wasn’t the right time for that. We don’t have any immediate plans to increase prices, but we are doing some work to consider our pricing and packaging, listening to our customers and considering how we provide value and choice.
“Another piece of context is the uplift in our sports programming costs, particularly with the commencement of the new Sanzaar deal from 1 January.
“So, yes, in the context of our overall ‘value for money’ work, we will be looking at the future price of Sky Sport.”
Meanwhile, Moloney said she had met with Spark chief executive Jolie Hodson.
The Sky chief executive said her company could help extend the reach of Spark Sport’s domestic cricket coverage by getting it into pubs and clubs — in the same manner that Sky did with a dedicated pubsand-clubs-only channel for Spark Sport during the Rugby World Cup. But, again, talks were still in their early days.