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Sky’s results could be a worry to Rupert and James Murdoch. Despite the operating profit tumbling 9 per cent for the half-year to December 31st (blamed mostly on the cost of acquiring Premier League football), the market took the view that its 6 per cent organic growth was – in the main – good news.
After all, Europe-wide growth of an extra 500,000 subs to one or more Sky products should not be sneezed at. Ted Hall, senior analyst at IHS Technology, was right to praise the results as “impressive” but with the caveat that the danger of a DirecTV-type series of carriage disputes with Discovery/Eurosport –and potentially others – does nobody any favours.
The thought of a ‘Sky Family’ bundle without Discovery’s portfolio of 12 channels could be frightening for many. Sky says viewership of Discovery (and its channels) is down and that it is “overpaying” for Discovery’s factual channels. One might ask: so what? Discovery claims that it is currently paid less by Sky than it was a decade ago (despite the ever-increasing annual fees for subscribers since then), and says bluntly that if the situation is not resolved by the end of the month they’ll pull all their channels from Sky.
Sky’s churn is also high, currently at 11.6 per cent, and while the Sky NOW TV portfolio of easy-access channels will help grow subs, as will the promised 2018 introduction of an on-line SkyQ service, it means that Sky’s satellite-based core subscriber base is under pressure, although IHS questions how much of a niche a pure on-line offering might be.
But as with North America, cord-(and cable/DBS subscriber) cutting is the new normality. The likes of Netflix and Amazon are now dramatically increasing their programme spend, although not yet in sport (although never say never). Their programming is increasingly popular, and Sky’s advertising-heavy output is enough to drive even the most loyal of Sky fans crazy with the never-ending interruptions. In other words, it is no surprise that churn is a worry and take-up of Netflix and Amazon is rising.
Advertising income across the three core markets (UK & Ireland, Germany & Austria, and Italy) was worth £396 million (€371m) for the half-year. Sky earned more from selling its programming to third-party broadcasters (£405 million).