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  1. #1671
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    Was thinking about more about the Market Update last night.

    I prefer to look at NOPAT instead of EBITDA (depreciation might be non-cash, but tax sure as hell is!). If we deduct $30M (I actually think it will be more like $20M, but let's be conservative...) for tax then we have a NOPAT range of $140M - $160M.

    Let's just say Depreciation and amortisation will be approx $100M to keep the numbers simple with the new IFRS 16 rules (it may be lower since we amortised goodwill aggressively over the last two years). So that would leave an accounting profit of say $40M - $60M.

    However the depreciation charge is huge, and bears little resemblance to Sky's "stay in business" CAPEX. Most of their costs (content, wages etc) are OPEX.

    So CAPEX requirements to 'keep the lights on' in terms of making sure their existing systems and property etc function well is much less than $100M per year. Let's be ultra conservative here by saying that amounts to about $1M a week, roughly $50M a year (even though we know there is no way they are spending $50M a year just on maintenance).

    That then generates one of Warren Buffet's favourite metrics: 'Owner Earnings'. Owner Earnings then equal $90M - $110M and may or may not resemble FCF. This is the amount of money, however, that owners have to do what they will with - pay a dividend, reinvest in the business, a combination of both etc.

    Of course, Sky TV is in an intensive capital expenditure phase at the moment - and choose to spend a bunch of that money on growth projects. The only realistic way to grow Sky TV is to invest in modern digital platforms and creating new revenue streams (i.e. purchase of RugbyPass).

    The Owner Earnings figure is key though. The company could choose to pay it all out as a dividend (which would be foolish in Sky's case at the moment) or they can choose to invest it back in the business for growth.

    Even though I understand there are a plethora of 'bad news' stories our there for Sky, I am still amazed that even after a capital intensive strategy change, the business is so profitable that it will still likely generate 'Owner Earnings' of around $100M.

    Closing Market Capitalisation yesterday was $388M. To be selling at less than 4 times projected Owner Earnings is baffling to me (don't get me wrong, I am happy as it enables me to buy more...). But baffling all the same.

    The analysts and institutions must assume that none of the new initiatives Sky TV are working on will be successful I suppose, and Spark will crush them in Sport even though Sky have held on to key sporting rights out to 2026.
    Last edited by mistaTea; 19-11-2019 at 12:06 PM. Reason: a minor clarification

  2. #1672
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    https://www.vox.com/recode/2019/11/1...a-cord-cutting

    Agree with John Stankey that customers will look for good content aggregators. The fragmentation of services drives me nuts.

    I wouldn’t mind paying $10/month for all of the Disney content, however I am not signing up because I already have 5 services - Netflix, NEON, Lightbox, Sky Sport NOW and TVNZ ON DEMAND) and it’s unwieldy already. I have to actively go hunting across the platforms to see what I might want to watch.

    With a little luck the new Sky TV app will include API’s that allow it to connect to other service providers like Netflix and Disney etc. so their content can be aggregated with Sky’s.

    I know Netflix give Spark wholesale rates, so Sky could get the same and offer Netflix at cost to get people on the new platform.

    It would be presented as another channel just like they have for BeinSport.

  3. #1673
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    You need to put yourself on a diet. It’s summertime !
    Interesting talkback on ZB this morning. Apparently really aggressive discounting by SKY if you try to leave.
    Lots were, and loving Disney. Already.

    Quote Originally Posted by mistaTea View Post
    https://www.vox.com/recode/2019/11/1...a-cord-cutting

    Agree with John Stankey that customers will look for good content aggregators. The fragmentation of services drives me nuts.

    I wouldn’t mind paying $10/month for all of the Disney content, however I am not signing up because I already have 5 services - Netflix, NEON, Lightbox, Sky Sport NOW and TVNZ ON DEMAND) and it’s unwieldy already. I have to actively go hunting across the platforms to see what I might want to watch.

    With a little luck the new Sky TV app will include API’s that allow it to connect to other service providers like Netflix and Disney etc. so their content can be aggregated with Sky’s.

    I know Netflix give Spark wholesale rates, so Sky could get the same and offer Netflix at cost to get people on the new platform.

    It would be presented as another channel just like they have for BeinSport.

  4. #1674
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    Quote Originally Posted by RTM View Post
    ..
    Interesting talkback on ZB this morning. Apparently really aggressive discounting by SKY if you try to leave.
    Lots were, and loving Disney. Already.
    They should be lowering their process overall, as I said both starter and "entertainment" for $25 or so - not each

    I do wonder how much some are paying for all these services - excluding sky and as mr t says got to go hunting for a programme over different platforms - me old school - Sky- the 2 basics and Sport only (free SOHO) and TNVZ on demand plus Spark Sport for the (Motor racing in the main)

  5. #1675
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    Quote Originally Posted by Jay View Post
    They should be lowering their process overall, as I said both starter and "entertainment" for $25 or so - not each
    Agreed, it really annoys me when I see that them offering such aggressive New Business pricing and then even more aggressive Retention Pricing. It is a policy they had before, and it failed big time. If they just got their pricing right in the first place - they wouldn't have to jerk their customer base around.

    I have raised this with the CFO, CEO and Chairman in person. I hoped they would listen, and feel somewhat less than pleased when I hear that not only have they not taken my input seriously - but have actually gone down a flawed strategy (presumably with the hope of being able to report decent subscrition numbers in Feb, thereby propping up the Shareprice in the short term).

    I have just sent an email to the CEO and CFO expressing my concerns and highlighting my displeasure. Reproduced below.

    *****************

    Martin,

    Following on from the conversations I have had with both of you regarding pricing and bundling content in an attractive way...


    A discussion on talkback ZB yesterday morning covered Sky TV - and how Sky are currently 'heavily discounting' bundles to stop people from going when they threaten to cancel. I am not a satellite subscriber so I can't ring the Call Centre and test it out for myself.
    But I believe the stories as it sounds about right. Sky have done this type of thing in the past in order to prop up subscription numbers. A strategy that only ever works in the short term at best.


    Martin, I forget which Annual Report this was discussed (possibly 2016 or 2017), however your predecessor confirmed that Sky TV would stop the practice. The reasons were essentially two-fold:



    1. It really really pisses off existing loyal customers who don't complain and loyally pay their fees month in and month out when they find out that all it takes to get a better price is to ring up and threaten divorce; and
    2. The customers who end up staying based on the discounted offer end up leaving anyway. Once the price goes 'back to normal' after their offer period expires they tend to bugger off, so holding on to them with a 'we're begging you, please don't go' strategy is really doomed to fail.


    As I discussed with you at the AGM, and I repeat - if you offer attractive bundles and pricing in the first place you need not worry about high churn rates. People will stay with you because you are offering value for money. Many will spend their 'savings' on aquiring more content if the price is right (we observed that when Sky Basic was split into Starter + Entertainment).



    I won't repeat the whole discussion we had here, but getting rid of things like MySky fees, reassessing your bundles and making it cheaper to add more bundles to existing packages (i.e. if you have our Sport package, you can add Movies + SOHO for $20) is the way to go long term. Earnings may well take a hit in the short-medium term, but it is necessary for the long-term prosperity of the business. And earnings may not suffer as significantly as you think, given the right marketing strategy to encourage custromers to take more content.


    How else will we increase our brand value in consumers minds? We have to come to grips with reality.


    Right now, you are effectively doing what I am saying anyway - dropping your prices. But you are doing it in a way thay really pisses people off:



    1. Aggressive New Business Deals (Free Starter + Movies or Sport for a month and free MySky for 3 months...)
    2. Agressive discounts when customers try leave at the end of their contract because they are now paying 'normal' Sky pricing - and they just can't justify the high expense relative to other entertainment options.


    For the love of God, just offer attractive pricing in the first place and you won't have to do any of this. These issues could be fixed virtually over night - you don't have to be the cheapest (as we do offer a premium service) but you still need to be competitive.



    One final example, to show how nuts the current situation is. My sister in law is a satellite subscriber. A year or so ago a salesman knocked on the door and offered her a heavily discounted package for a 6 month contract. From memory it was $60/month or so and they got Starter + Sport + SOHO + MySky (usually $80 worth).


    Once the 6 months was up and their pricing reverted to 'normal' they contacted the guy who sold it to them and said they wanted the same deal again or they would cancel. He advised her to cancel her current sub, wait for the stand down of a month or so and then he could sign them up again for the same deal under her husband's name to get around the system/policy constraints.


    Which is what they did. And once their current offer comes to an end I am 99% certain they will leave and then we will offer them some other 'amazing discount' to stay.


    I have discussed this at length with them and they have confirmed that if Sky just offered the pricing they are currently getting as their normal offering they would not cancel. They end up with a price they consider 'fair' anyway however they have to go through this whole rigmarole to achieve it - which just ends up annoying them.


    I really hope you both take this feedback seriously. It's one of those situations in life where I know deep in my gut that I am absolutely right in what I am saying - and your team have got this one terribly wrong.


    Feel free to forward this feedback to Philip Bowman, I think he should see feedback from shareholders who are also customers.

  6. #1676
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    Good on you mr T

  7. #1677
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    Yeah well said. Lets see if they heed your call. If I could be bothered I would do the cancel and re sign thing too. Its a rort and SKY need to adjust their pricing.

  8. #1678
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    Well said.. Couldn't agree more..
    I did drop sky for a few years but missed my Rugby league!
    Currently have Sky Starter and entertainment. Have saved the money on Sport for the summer as the cricket these days seems pretty boring to me !
    Sky Starter is a rip off on its own.. And paying for MySky which I do also grates..
    I do like My Sky and find it easy to use.. It's just not that special anymore!

    If Sky loose the NRL then I really couldn't justify keeping it..
    Had one if those Kodi boxes for a while but to be honest I found it to be a pain in the arse...

    No a holder and not intending to be anytime soon..

  9. #1679
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    Quote Originally Posted by RTM View Post
    You need to put yourself on a diet. It’s summertime !
    Interesting talkback on ZB this morning. Apparently really aggressive discounting by SKY if you try to leave.
    Lots were, and loving Disney. Already.
    What sort of pricing mate ?

    I currently have Sky Starter and Sky entertainment, (solely for CNBC because I still love watching it on the big screen and do get some good info on what's happening overseas with investment trends and idea's so it probably pays for itself many time's over to be honest), and Sky movies for $72 a month. I "bought" the My Sky box years ago so they don't change me for that but it actually turns out I don't own it, which is great because my hard drive died last year and they gave me a new My Sky box for free.

    Wonder what I could get it down to if I threatened divorce ? Thoughts ?

    I wouldn't touch their shares with a barge pole.
    Last edited by Beagle; 21-11-2019 at 04:45 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  10. #1680
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    Quote Originally Posted by blackcap View Post
    Yeah well said. Lets see if they heed your call. If I could be bothered I would do the cancel and re sign thing too. Its a rort and SKY need to adjust their pricing.
    Yeah let’s see what happens. Feb will be interesting in terms of strategy etc.

    The new team are getting so many things right (in terms of new direction etc). Which is why I am still optimistic about their future.

    But for some reason they seem to repeatedly drop the ball when it comes to their satellite pricing and discounting strategy.

    And because I always try to remain objective with my investments it’s important for me to call things out when I see them (as opposed to pretending everything is peachy just because I own some shares and hope like hell everything is going to turn out ok).

    Martin might not have liked my email - but I’m his biggest fan, and am in his corner 100%. But your best friends are the ones who are prepared to give it to you straight.

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