Doubts and disappointment in Sky TV move on MediaWorks

Investors in Sky Network Television who were expecting a wad of cash coming their way from a takeover had a rude awakening this week when it turned out that the pay-TV company was the hunter not the hunted.

The reaction to Sky TV’s announcement on Tuesday that it was looking at an acquisition was immediate, with the company’s shares falling 7%.

So what’s going on?

Dashed expectations

A report in the Australian Financial Review’s ‘Street Talk’ column last week said Sky TV’s bankers had been touting a potential acquisition of the company to private equity investors for ‘‘A$500 million-plus’’, equivalent to about NZ$550m or more.

When Sky TV instead announced this week that it was looking at taking over radio and advertising business MediaWorks for $150m to $200m, investors were disappointed, preferring that the company be taken over.

Some analysts said they were ‘‘perplexed’’ by the MediaWorks proposal and weren’t convinced it would help Sky TV grow.

Why is a takeover attractive?

Sky TV was once a powerful pay-TV business that dominated the New Zealand market with its satellite service.

But technology has changed that and the arrival of streaming services such as Netflix mean it is no longer the only game in town offering premium content.

It has been losing lucrative satellite subscribers while competition for content and viewers has increased, squeezing earnings.

What is the outlook?

Some analysts say the loss of satellite subscribers is starting to stabilise, allowing the company to turn its focus to attracting customers to its streaming services, and it’s expecting to return to paying a dividend this year. But others note it’s still in the early days of its turnaround phase, having only just reported its first modest growth in revenues in five years.

Advisory firm Grant Samuel had a rather brutal assessment back in 2016 when Sky TV wanted to merge with Vodafone NZ, saying its future as a standalone pay-TV company wasn’t attractive and the viability of the business could be under threat.

For investors, a takeover would have been a quick win.