Equity analysts from some of the London investment banks recently sat down with Sky’s senior management and some interesting views emerged, not least with the prospects from the upcoming auctions for Sky’s German football rights.
One report, from Exane/BNP-Paribas, said that Sky’s staffers argued that a combination of upselling a wider portfolio of products (broadband, phone, SkyQ, etc) would continue to benefit the broadcaster, and that overall Sky in the UK would also benefit from BT Sport’s recent price rise.
The bank’s report said that Sky’s track record on innovation and market segmentation is strong and Sky Q, mobile, NOW TV, Sky Store and further triple play penetration can drive attractive growth.
However, the wider optimism was very much focussed on Sky’s German operation. Exane said: “Management identified the German business as an area of substantial upside, following a period of downward earnings revisions. Sky’s control of Germany is only effectively c.6 months old since the squeeze out of minorities and has involved increased investments (connecting set-top boxes, drama content and box sets). Looking ahead, low pay-TV penetration and extension beyond sport should drive growth. We note a market characterised by retail partnerships and wholesaling offers different competitive dynamics for content rights compared to the UK.”
While admitting that the cost of programming, and in particular sports rights, was a threat, the bank added: “We view structural pay-TV concerns as overdone with significant differences to the US market including lower and more flexible pricing, greater content differentiation and lower pay-TV penetration. While we forecast significant content cost inflation for the flagship sports rights in UK, Italy and Germany, we stand ahead of consensus expectations.”