After a change of CEO, Sky TV reveals improving financial results but much still depends on its new Sky Box and dexterity at streaming content, writes Mark Jennings
Former Sky TV CEO, Martin Stewart, was in the job for just two years but left with $2.8 million worth of cash and shares in his back pocket.
Stewart quit in December 2020, saying he was returning to Europe because Covid restrictions would make it difficult for him to visit his UK-based children. Sky TV chair Philip Bowman said at the time Sky’s board "respects Martin’s decision to leave."
But Sky’s latest results revealed the big payout and described Stewart’s departure as a “mutually agreed exit.”
Talk at the time suggested the board was unhappy with Sky’s share price of 16.4 cents (having fallen nearly 70 percent in 12 months). Sky’s legal counsel, Sophie Moloney was appointed to the CEO role “effective immediately.”
The share price, after this week’s release of the Full Year result, nine months after Stewart walked, was 15.6 cents.
Since replacing the ebullient Englishman, Moloney, has cut significant cost out of the business. Operating expenses decreased by $48 million (8%) in the last financial year.
Staff costs dropped by $14 million, including cuts to sports news and the Sky watch magazine. $13 million was saved from cancelled or postponed sports events and by not renewing cricket rights.
Net profit jumped 130 percent to $47.5 million. A good performance in Covid times surely? So why the disenchantment from investors?
A decline in revenue and a prediction from Moloney that next year’s profit could be as low $17.5 million, in what she terms a “year of inflection” as the higher costs of sports rights are absorbed are the likely reasons.
Revenue dropped 5 percent despite streaming revenue jumping an impressive 24 percent.
The problem for Sky, as it has been for some time, is the continued decline in its most lucrative revenue source – Sky box . Income from Sky boxes dropped by 9 percent, following an 8 percent drop the previous year. The number of Sky box customers dropped from 555,000 to 532,000. Average revenue per sky box customer dropped from $79 to $78. A few years ago it was $85 per customer.
Attempts by Sky to build a new, high spec, box have been almost farcical.
Under long time CEO John Fellet in-house software development was shelved.
In August 2018, Fellet joked with journalists, ”our R&D department has been Jason (Hollingworth, CFO) and I reading trade publications.”
At the same briefing he revealed Sky was buying new boxes from American giant CISCO; they would have more storage and record more channels simultaneously,and the software was in its final week of testing.
Due to “technical problems” the box didn’t make it to the rollout stage and Fellet retired. In June 2019, new CEO Stewart scrapped the idea of new box entirely saying it was old technology and the company was now concentrating on streaming its content straight to devices.
“From my first day at Sky I have talked about how streaming services are our future. Over the last few months we have taken a close look at Sky’s technology roadmap and as a result have sharpened our future focus,” said Stewart.
Some time in 2020, Stewart quietly changed his mind and the company went looking for a new box. This week, Moloney announced the new box will finally arrive mid-2022, four years after Fellet intended.
Suddenly, it seems, the box, or My Sky as it is currently branded, has a key role in Sky’s future.
Moloney now describes Sky as a ‘content aggregator’. Many customers already watch the free-to-air channels through Sky’s box and the new version will mean they can stream Netflix, Amazon, Discovery+ etc. as well.
“Our ability to reach New Zealanders right across the country, the reliability of our service, and our multi-platform approach across satellite, streaming and free-to-air makes us a strong partner for global and local players.
“Our new Sky Box will reinforce that preferred aggregator position even more, with a hybrid box that offers our customers great functionality, a superb range of content across Sky channels, and access to a range of apps and SVOD services – all conveniently in one place and, importantly, with one remote,” says Moloney.
What the market really wants to see, though, is an increase in revenue. Moloney’s ambition is to achieve growth of $75 - $100 million annually by 2024. It is not impossible, with streaming revenue growth predicted to outstrip Sky box revenue's decline in FY 22 and with advertising predicted to recover to pre-Covid levels, but boy it is a big ask.
Despite its challenges, Sky still has a customer base of 955,168 and a strong free cashflow. With a market capitalisation of only $280 million, it must be on the radar of other media and private equity companies.
Sky itself has had enough of being in the ‘penny dreadful’ category of the NZX. It is planning to consolidate every 10 of its shares into 1 share. A share price of $1.56 sounds and looks a lot better than 15.6 cents.
