Sky Deutschland’s numbers earlier this week certainly impressed the market. With Q2 subs growth of 48,000 and much better than expected, CEO Brian Sullivan is now guiding for a “new era” at Sky-D and that subs growth for the full year will be “above 351,000” and the market consensus is now to expect 350,000-400,000 for this full year.
Indeed, investment bank Morgan Stanley in a note to clients says that “We think Germany is at the beginning of a period of pay-TV growth of which SkyD, the unrivalled premium player, will be the major beneficiary. It now has the ability to fund its growth and Fox, which owns 54.5 per cent, may wish to cement its grip.” Indeed, the bank implies that with 21st C Fox sitting on $8 billion of cash a move on Sky-D by Rupert Murdoch could be sooner than later.
Unlike in the UK where EPL football rights run for 3 years, in Germany its Bundesliga has a 4 year renewal cycle. This gives immense visibility for Sky, and also helping significantly is that Sky owns the IPTV rights which means it will be potentially present in just about every German homes. “There is clear evidence German uptake of pay TV, presently at 15 per cent penetration, is improving. There is enormous headroom to European peer levels,” says the bank.
The bank’s BASE case forecast suggests that by 2020 Sky-D could have 6.4 million subs (14.7 per cent penetration of German TVHH) and with HDTV taken by 76 per cent of subs. But the bank’s BULL case suggests 7.3 million subs by 2020 (16.9 per cent penetration).
“In our view, says Morgan Stanley, “there is only one winner in German premium pay TV, SkyD. It is the biggest player with 3.4 million subs and has the highest pay TV ARPUs (€33.7pm). It dominates premium content in film and sport and has the Bundesliga rights for cable, satellite, mobile/internet and IPTV until the end of 2017. It has 69 HD channels, the most comprehensive offer in Germany, and at the end of 2012 was judged the pay-TV ‘Service Champion’ by ServiceValue GmbH (Germany’s largest service ranking organisation) as well as ‘Fairest Premium TV provider’ by Focus-Money in July 2013.”
And then here’s the spin-off of all-important football to cable. The bank adds: “Sky-D thinks the pool of Ligatotal! customers is in the range of 150-200k and that a realistic target for conversion to full Sky-D customers is 60-80 per cent (i.e. 90k -160k). CEO Brian Sullivan thinks the eventual number is likely to be at the upper end of this conversion range. Ostensibly Sky-D incorporates this potential level of incremental net additions into its 350-400k indicator of annual subscriber growth in 2013-14 (as do we), although we feel that this is likely to be a conservative assumption.