New Zealand’s leading pay-TV operator Sky Network TV (Sky TV) held an investor day May 26, shedding some light on its growth story in an increasingly competitive market.
The company ended 2014 with 856,348 customers and a blended monthly Arpu of US$65. Key takeouts from the investor day include:
Sky TV has further beefed up its content pedigree with aggressive investment across all windows (pay, on-demand and digital).
On the sports front, Sky TV has extended key rights across rugby and cricket (five-year deals for major tournaments) while inking new deals for the Rio Olympics and the next two Fifa World Cups.
The pay-TV provider has also signed major output deals with Disney (five years, taking in pay-TV and SVOD) and HBO, while strengthening and deepening its partnership with Discovery.
The deal with Disney kicks off from July 2015 onwards with the launch of the new Sky Movies Disney channel and exclusive premiere rights to new Marvel and Star Wars franchises.
None of this comes cheaply, however. Content costs as a proportion of revenue have historically trended at 30-33% but Sky TV’s guidance for FY 2016 projects this share to rise to 35%.
Sky TV wants to leverage its substantial content investment to drive its OTT business without cannibalizing its core revenue streams.
In New Zealand, OTT video is creating significant competition for pay-TV.
Sky TV has already leveraged output deals with players such as HBO to launch its own OTT offering, branded Neon, in February, priced at US$15 per month. Game of Thrones launched on Neon in April.
Neon also forms part of Sky TV’s tie-up with local telco Vodafone, which bundles TV content from Sky with its broadband packages.
At the investor day, Sky TV management indicated that more emphasis will be made to improve its authenticated service Sky Go in terms of mobile functionality, more premium features and better integration with the pay-TV set-top box.
Fan Pass, a sports streaming service for non-subscribers, will also be relaunched to allow access to Sky Sports channels via daily and weekly passes (similar to Now TV, from Sky – a separate company, formerly known as BSkyB – in the UK), priced at US$13 and US$20 respectively.
The Fan Pass service, unveiled earlier this year in February, delivers access to one season of Super Rugby, NRL rugby or Formula 1 for US$56/month, priced to minimize cannibalization of Sky TV’s main sports offering.
Sky TV is also looking to launch an integrated OTT set-top box (similar to Sky UK’s deal with Roku) for plug-and-play distribution of current and future OTT services.
In essence, Sky TV is looking to offer customers streaming devices similar to the Now TV set-top pucks that Sky has in the UK.
About 70% of Now TV subscribers in the UK use a set-top puck device. The plan is for Sky TV to offer apps across its OTT services using the puck.
Sky TV is also dipping further into the broadband market through a resale arrangement with Vodafone.
Sky TV customers will get a NZ$10 (US$8.3) monthly discount off their Sky TV subscription if they sign up to one of 14 eligible Vodafone plans.
The NZ$10 discount will be available with copper, cable and fiber broadband plans from Vodafone that have 80 GB traffic caps or unlimited data.
The company already has an arrangement with Vodafone under which customers can be billed for their Sky TV subscription on their Vodafone bill.
"We've proven over many years that we're compatible business partners and the launch of broadband deepens our business relationship,” said Sky TV CEO John Fellet.
"Sky TV will soon enable all boxes to be internet-connected, and will offer a wide array of on-demand content for customers to view on top of our many satellite delivered channels," he added.
Sky TV will be responsible for aggregating and curating the pay-TV part of the bundle, while Vodafone will manage technical issues and installation.
At present, close to 15% of Sky TV’s pay-TV subs receive bundled products from Vodafone.
TECHNOLOGY
Over 2H 2015, Sky TV plans to upgrade its EPG and launch a new internet-enabled set-top box to accelerate the rollout of on-demand services.
The launch of the new set-top, which will cost ~NZ$100 million (US$83.3 million) over the next 18 months, will be critical to Sky TV’s future plans.
While robust and committed to product innovation, Sky TV has been slow bringing new products to market, in common with a number of pay-TV operators.
The Fan Pass product was entirely outsourced and others may follow this route to accelerate time to market.
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