SKT Sky Network Television Limited.

[mistaTea]

Hi everyone. I would never buy this stock. I just wish to ask a couple of questions that you in this chat might know the answer to.

I am a [paid in advance yearly] subscriber to Sky Sport Now and also Neon, which I watch on my TV via a Windows laptop. Neon is fantastic, loads of shows, TV especially. Sky Sport Now, while it has a totally garbage user interface and still uses a "TV Guide" lol (everything that isn't live should be on-demand!!!!!), has the following which I watch as a form of addiction lol.

English Premier League
International rugby
Tennis majors
NFL
NRL
Aussie Rules

I could give up Neon (and probably will when it runs out).

But giving up those sports above is clearly difficult when the yearly subscription is so expensive - and yet I would rather go hungry than cancel.

1) Why the F%^$ does Sky need a physical device at all?

2) Wouldn't it make more sense for Sky to keep and control all those sports, and the other ones too, as their core business but spin off all the other stuff they "broadcast"?

Good questions.

1. It’s a long story, and in 2023 I suspect they have missed the boat on this. Even if their new STB worked well it was unlikely to be a massive drawcard for new subs as customers have moved on (most just stream using apps, those non-sky customers who want a STB use devices from tech powerhouses like Apple).

Some backstory, around the time of the sky-Voda merger … sky was working on a new STB. It was the Cisco infinite video platform. This was just as NETFLIX was making major inroads, but there weren’t really any other big streamers at that time.

The idea was to secure sky’s position as the ‘aggregator of choice’ by providing a modern UI that pulled together sky content with 3rd party apps like nettlix and any other new ones that came online. Couple this with sky diversifying revenue by becoming a telco (merging with Voda) and hey presto! Future secured.

So the vodafone deal was rejected and John Fellet (long standing CEO at the time) resigned. They hired a new guy - Martin Stewart.

Martin wanted to shake things up, and one of the first things he did was cancel the infinite video project (this cost shareholders about $40M of sunk costs btw - so a very big call). His argument was that MYSKY costumers were ‘well served’ (well, the majority of them are old and unlikely to cancel anyway) and that he wanted to focus on building our world class streaming services. I certainly agreed with the need for big upgrades to NEON and FANPASS (predecessor to sky sport now).

FANPASS was a dog that only allowed you to stream sky sport 1-4 and there was no on demand content (or very little from memory). So even though SSN is still a bit sh1te as a platform compared to Spark sport - it is leagues ahead of what was there before. They seem to have stopped innovating in this space and I agree that it is not great that it is linear based.

For NEON, Martin purchased Spark’s LIGHTBOX and rebranded it to NEON. Once again, sparks tech way better than sky’s so this was a big improvement.

However, like SSN the innovating for NEON seems to have stopped.

In the meantime, somewhere along the line about 18 months or so after canning the Cisco project someone at sky decided they did need a new STB after all! So let’s begin a brand new project from scratch!

And let’s make the new box a hybrid satellite/IP product so that any box we buy will require customisation (i.e be expensive) even though this new box is unlikely to drive any growth!

Anyway, I could go on about more background etc - but in terms of your question … do they need a new STB? There is an argument that they should. If they could land the right product that aggregated content from third party providers with their own content in a user friendly UI then they could maintain some relevance long term. But to do that they should just have an IP box - and one that works!

With the innovations coming from Apple TV and others though I suspect sky are just way too late now. Entering the party so late, and with a box that doesn’t work is just terrible.

2. Sky don’t control anything - they just rent content. The business mode relies on the ‘power of the bundle’. Outdated now, but if sky got out of everything else except sport … they would have to charge a lot more for their sports bundle than they do now because they don’t have any other ‘hooks’ to get subs to pay for more (and therefore cross subsidise the sport offering).

Sport is a significant part of their customer base, but the majority of their subscribers have some form of entertainment service or bundle - so that would be a big call (and the wrong call imo).

[mikelee]

I wouldn't call the "bundle" model outdated necessary, it just has to evolve to cater to demand. Considering that even industry giants like Disney & NetFlix struggles with high production cost, an intermediary could come in, cut a good deal and then on sell to people who rather not bother with multiple subscriptions.

[mistaTea]

I wouldn't call the "bundle" model outdated necessary, it just has to evolve to cater to demand. Considering that even industry giants like Disney & NetFlix struggles with high production cost, an intermediary could come in, cut a good deal and then on sell to people who rather not bother with multiple subscriptions.

Yes you are right. I should be more clear by stating that I think the bundle itself is not outdated, but the largely linear channel bundle model is.

Ultimately even the individual streaming services will do better as part of a ‘bundle’, for sure.

So, Spark have an exclusive deal with NETFLIX to bundle their serviced with broadband.

2D have a deal with Amazon.

It will be interesting to see what (if anything) One NZ do now that they no longer have vodafone tv.

Sky have a (costly) deal with Disney to offer Disney+ as a hook for broadband. They don’t offer it as an ongoing service though because it would cost too much (and they are trying to offer STB customers discounted internet).

Ultimately they will want to have wholesale deals with as many streamers as they can so that they can offer additional ‘bundles’ to their STB customers (the whole point - I think - of investing in a new box).

But until they can actually provide a box they firstly actually works and then is able to have wider appeal then this project is just another expensive exercise.

If they are only ever able to convert existing MySky subs to the new box then where is the gain for shareholders? Most of the MySky subs would not have canceled anyway (evidenced by the low churn rates we have seen in the last couple of years).

[LaserEyeKiwi]

I dont see any point in an intermediary forming OTT bundles. Much more likely the OTT services work directly with each other rather than including an unnecessary middle man.

I have no idea why Sky doesn’t offer a NEON/SSN bundle though.

[mistaTea]

I dont see any point in an intermediary forming OTT bundles. Much more likely the OTT services work directly with each other rather than including an unnecessary middle man.

I have no idea why Sky doesn’t offer a NEON/SSN bundle though.

Yeah, you may well be right about the third party bundling. But if that is not a viable option then all this money spent on creating a new box is wasted. They would have been better off sticking to Martin’s plan of super charging streaming services while letting the (reasonably stable) STB base fund the transition.

Yes, bizarre that there is no NEON/SSN bundle. I also would have thought they would offer discounted broadband as part some streaming packages too.

And I would also have thought that a Sky GO only option would be on the cards.

Annual Report will be interesting so we can find out what Sky’s Big Plan is for the future.

[Azz]

Good questions.

1. It’s a long story, and in 2023 I suspect they have missed the boat on this. Even if their new STB worked well it was unlikely to be a massive drawcard for new subs as customers have moved on (most just stream using apps, those non-sky customers who want a STB use devices from tech powerhouses like Apple).

Some backstory, around the time of the sky-Voda merger … sky was working on a new STB. It was the Cisco infinite video platform. This was just as NETFLIX was making major inroads, but there weren’t really any other big streamers at that time.

The idea was to secure sky’s position as the ‘aggregator of choice’ by providing a modern UI that pulled together sky content with 3rd party apps like nettlix and any other new ones that came online. Couple this with sky diversifying revenue by becoming a telco (merging with Voda) and hey presto! Future secured.

So the vodafone deal was rejected and John Fellet (long standing CEO at the time) resigned. They hired a new guy - Martin Stewart.

Martin wanted to shake things up, and one of the first things he did was cancel the infinite video project (this cost shareholders about $40M of sunk costs btw - so a very big call). His argument was that MYSKY costumers were ‘well served’ (well, the majority of them are old and unlikely to cancel anyway) and that he wanted to focus on building our world class streaming services. I certainly agreed with the need for big upgrades to NEON and FANPASS (predecessor to sky sport now).

FANPASS was a dog that only allowed you to stream sky sport 1-4 and there was no on demand content (or very little from memory). So even though SSN is still a bit sh1te as a platform compared to Spark sport - it is leagues ahead of what was there before. They seem to have stopped innovating in this space and I agree that it is not great that it is linear based.

For NEON, Martin purchased Spark’s LIGHTBOX and rebranded it to NEON. Once again, sparks tech way better than sky’s so this was a big improvement.

However, like SSN the innovating for NEON seems to have stopped.

In the meantime, somewhere along the line about 18 months or so after canning the Cisco project someone at sky decided they did need a new STB after all! So let’s begin a brand new project from scratch!

And let’s make the new box a hybrid satellite/IP product so that any box we buy will require customisation (i.e be expensive) even though this new box is unlikely to drive any growth!

Anyway, I could go on about more background etc - but in terms of your question … do they need a new STB? There is an argument that they should. If they could land the right product that aggregated content from third party providers with their own content in a user friendly UI then they could maintain some relevance long term. But to do that they should just have an IP box - and one that works!

With the innovations coming from Apple TV and others though I suspect sky are just way too late now. Entering the party so late, and with a box that doesn’t work is just terrible.

2. Sky don’t control anything - they just rent content. The business mode relies on the ‘power of the bundle’. Outdated now, but if sky got out of everything else except sport … they would have to charge a lot more for their sports bundle than they do now because they don’t have any other ‘hooks’ to get subs to pay for more (and therefore cross subsidise the sport offering).

Sport is a significant part of their customer base, but the majority of their subscribers have some form of entertainment service or bundle - so that would be a big call (and the wrong call imo).

Thank you for that extensive post.

[LaserEyeKiwi]

Honestly the amount they are spending on CapEx for the new Sky box is beyond stupid. All that cash going up in smoke for something that could have been done as a zero cost app for SmartTV/AppleTV/Chromecast.

[Moneyman]

Double the divided by FY26…. That’s 30cps, if they achieve that current shareholders will be very happy!

[Leemsip]

Honestly the amount they are spending on CapEx for the new Sky box is beyond stupid. All that cash going up in smoke for something that could have been done as a zero cost app for SmartTV/AppleTV/Chromecast.

Wow $70m capex! Jesus christ

[mistaTea]

Double the divided by FY26…. That’s 30cps, if they achieve that current shareholders will be very happy!

Results in line with expectations I think - EBITDA down 12% and FCF only $17M.

30cps divvy would be about $43M payout. That assumes the market stays ‘stable’ and they can significantly cut back on R&D CAPEX and coast along.

SP has not exactly leapt up on the back of the bribe - too much uncertainty.

Great to see solid growth in SSN continuing, especially since NEON growth is slowing down.

SSN has a lot more room for growth.

Bit of a worry that STB attrition increased again.

Last year they lost 25K STB subs. This year they lost 31K subs (but managed to migrate 17K VTV customers). All on page 9 of the presso.

Holding onto VTV subs with various bribes is all good and well, but the fact is you actually lost 6K more of your core MYSKY subs than you did the year before.

I appreciate they want to show their numbers in the best possible light but I do think there is a lot of artistic license with the way some of this stuff is presented!