Healthy profit increase for Sky TV

06:43, Aug 22 2014

Sky Television has denied misleading subscribers over the reasons for its price rise this year, while reporting a 22 per cent jump in its annual profit to $161.4 million and a fall in costs.

Sky increased the cost of its "basic" pay-television service by 2.5 per cent to $48.07 in April, explaining in a letter to customers that "from time to time we do have to adjust our prices to reflect the increased cost of doing business".

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However, Sky's annual result released today showed its total operating expenses fell by $10m million during the year to June.

That decline was almost entirely due to a drop in its spending on programming, which fell from $289.3m to $280m over the year. Sky's total operating expenses, including amortisation and depreciation, dropped by $10m to $656.1m.

Sky explained it paid for most of its programming in Australian and United States dollars, so its costs had fallen as a result of the stronger Kiwi dollar.


Sky rewarded its shareholders for its higher profit by bumping up its total annual dividend from 24 cents to 29c, announcing a 15c final payout.

Chief executive John Fellet denied its April letter had been misleading, saying Sky expected its expenses would generally trend upwards, despite this year's decline, and that it was "smoothing out" past and future cost increases with this year's price rise. He also pointed to a $10.4 million increase in Sky's capital expenditure.

The previous year's programming costs had been higher than usual because of the Olympics and Sky expected to spend $100m over three years changing out its older Sky decoders, Fellet said.

These would be replaced so that all Sky subscribers would be able to watch a selection of programmes at a time of their choosing on television, via the internet.

Subscribers' average monthly spend on Sky increased by 2.2 per cent to $77.52.

Sky's profit was also given a nudge by New Zealand's rising population.

The company said its number of subscribers grew 1.1 per cent to 865,055 over the 12 months to June. That increase was slightly lower than the 1.5 per cent increase in New Zealand's population over the period, driven by rising net migration, and meant the proportion of households with Sky was little changed, hovering at about 49 per cent.

The company will face fresh competition on Thursday when Spark, formerly Telecom, launches its internet television service Lightbox. Priced at $15 a month, Lightbox will give subscribers access to 5000 hours of television programming they can watch online at any time.

Lightbox chief executive Kym Niblock said it aimed to attract 70,000 paying customers within a year. Some time after its launch Lightbox could offer customers a wireless digital media player, similar to Google's Chromecast gadget, that would slot into a television's USB port and make it easier for subscribers watch Lightbox on their televisions, she said.

News reports about Sky frequently attract a large number of comments on social media critical of the company and its value for money. But Sky said 13.2 per cent of customers quit Sky during the year, which was down 1.2 percentage points on its "net churn" the previous year.

"The root of the disgruntled response on social media is from people who are not happy with the model we provide and so we will keep looking at different models," Fellet said.

"What got us into 50 per cent of households, won't get us up to 75 per cent."

Sky's premium drama channel, SoHo, continued to be the "destination of choice", with "programming juggernaut" Game of Thrones proving to have huge appeal with viewers, the company said.

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