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A September 1st report from equity analysts at investment banker Jefferies suggests that pay-TV operator Sky is now “heavily” dependent on its profit growth by activity in Germany and Italy. Indeed, the bank is concerned that despite Sky bringing forward its annual price hike from September to June its revenue growth remained slow.
Jefferies takes the view that operating leverage is “leaking away” from Sky’s UK business and believes that there has been an under-estimate in terms of programming cost inflation for Germany (Germany’s Bundesliga rights auction will happen next April). Added to this there is clearly the risk of increased competition for the 2018 English Premier League rights, with film and TV series also proving to be more expensive to secure because of interest from HBO, Apple and the other Sky rivals.
On the downside the bank is also concerned that growth in German subscriptions could stall. But they could rise, admits the bank. However, definitely on the potential upside is Italy – currently assumed to be fairly flat – could recover and outperform subscription expectations. “German FTA rivals are well-funded and Sky’s brand is too synonymous with football. In Italy, we believe that TI’s triple-play ambitions could bring it into conflict with Sky over the longer term,” says Jefferies.
The bank is also concerned that the US ‘contagion’. which has seen significant downward re-ratings and in some cases worrying collapses in share prices, could migrate across the Atlantic.