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Sky’s profits unscathed by constant social media outrage

Sky Go has already stopped working and the game hasn’t even started.”

Sky NZ You failed to play out the final Daily Show, one of the bigger entertainment events of the year, maybe decade. You are so bad.” ?

It isn’t difficult to find someone making a negative comment about Sky TV’s service on social media. The broadcaster is a proverbial punching bag, with shots regularly flying in from Kiwis across all the available channels.

Admittedly, some of the comments are accurate in terms of pointing out major broadcasting faux pas committed by the company. Recently, the failure to screen the final episode of The Daily Show at the scheduled time certainly stands out as a blunder that should’ve been avoided. Similarly, the ongoing troubles with Sky Go frequently result in a knee-jerk flurry of scathing comments.

And yet, despite the continuous stream of negativity, Sky’s revenue and profits continue to rise at a time when the impacts of digital disruption are being felt across the industry.

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Sky’s revenue climbed from $909 million last year to $928 million this year, capping off a period of growth that has seen Sky revenue rise by $131 million since 2011. Profit also grew year on year from $161.4 million to $171.8 million.

The arrival of several SVOD players over the last year has resulted in Sky’s traditional subscriber model being brought into question, with viewers now having the choice to watch programmes when they want to. This has led to speculation that users would eventually move away from Sky in favour of options that allowed them to pick and choose more freely—and Sky chief executive John Fellet admits that it hasn’t been an easy period for the company.  

“Last year in this report I said there had never been a more challenging time to be in the industry,” he said in his report on the financial results. “This year has proven to be even more so. I firmly believe that SKY, and for that matter the whole media industry, is at an important crossroad. The roll out of ultra-fast broadband has introduced many challenges to SKY, but equally, more opportunities than ever before.”

In commenting on the SVOD market, Fellet made the point that the players in the market are quickly learning that it’s easier to buy content than it is to make money off it. 

“Other than Netflix to date it is hard to find a business in the new media field that actually makes money,” he said. “The largest company in the field, Netflix, only made US$26 million on revenues of US$1.644 billion for the quarter ended 30 June 2015. There are four SVOD players in New Zealand, all of whom are investing millions of dollars in content.”

The increased competition in the market does appear to be having some impact on Sky, with subscriber numbers slipping from 865,100 to 851,600 this year.

“The biggest source of churn comes from our customers who use our ’digital boxes,'” says Fellet. “These were the satellite receivers/decoders we started introducing in 1997. They do not have a hard drive in them to record series, movies and sporting events. The electronic program guide only goes out about three days. Overall not a great experience. We have now cut a deal with a decoder manufacturer who will supply new My Sky decoders for about one third of the price we purchased the original digital boxes for in 1997. We believe the new decoders when launched will lower churn and increase average revenue per subscriber. The total cost of this investment is estimated to be $120 million and will take place over this and the next two fiscal years.”

Despite the loss of some customers and the continued social media rage, the Kiwis still using Sky are paying in more money to Sky than they have in the past, with average revenue per user (ARPU) lifting from $77.52 last year to $79.54 this year.

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In addition to earning revenue from its subscribers, Sky also enjoyed a relatively strong year in the advertising department. 

Advertising revenue on Sky increased from $43.2 million in 2014 to $45.2 million in the last financial year. However, this good news didn’t carry over to the broadcaster’s free-to-air offering Prime, which saw a year-on-year drop in ad revenue from 27.3 million to 24.3 million, leading to a overall year-on-year dip from $70.5 million to $69.5 million.

While down on last year, the figures in the latest results are still higher than they were in 2011, 2012 and 2013.

Despite all the social media criticism, the numbers show that Sky’s traditional model is still working. And Fellet also points out that Sky has previously navigated its way through a period of change. 

“This is not the first time SKY has been in a transition period,” he says. “In the mid ’90s, SKY was a four channel UHF distribution network which covered about 80 percent of the population network with about 300,000 customers. There were two serious cable competitors against us at the time. The general press wrote and said cable was the future because one would be able to order a pizza with a remote control.”

Fellet also responds to critics who claim Sky has been too slow in its adoption of digital opportunities by pointing out that Sky has since 2013 launched Sky Go, Neon and Fan Pass, and that the organisation is currently trialling “a software programme which will allow customers the ability to download hundreds of hours of additional content by connecting their existing My Sky box to their home internet.”   

However, regardless of its continued dominance of the market, we can rest assured that Sky will continue to be saluted with social media hate in the near future. This is, of course, one of the privileges that comes with being the hated incumbent.  

This article originally appeared on Stoppress.

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