Ann: Offer Document, page-7

Great comments@MarsC

I think whichever way one looks at it, the value of the business will have increased beyond the net funds raised ($148M). Not that I particularly care about SP, but the current ~20c will imply a Market Cap of $333M when the new shares are issues. If you deduct the $148M net proceeds you have $185M (which is $37M above the pre-offer market cap).

No doubt the SP will bounce up and down for a while before things settle down, but it does imply to me that the market is showing some optimism for the company - which is great given it has been nothing but 'doom and gloom' news stories for Sky for the last 4 years.

I think the optimism stems from a number of factors (including breaking 1M subs), but particularly because:

1. Reducing debt by 148M is obviously beneficial. The banking syndicate is prepared to relax lending conditions and offer a more competitive interest rate etc on the back of this. If the banks are optimistic enough to lend more money for longer at cheaper rates then the 'market' should feel better too
2. The move into Broadband FY21. There is now a clear plan for how Sky is going to chart its way forward. I had considered whether their partnership with Vodafone would be enough to cover the telco aspect, but I think they are right to have direct offering. They won't make much money off their broadband offering in and of itself, but the bundles they will be able to offer will be compelling. As a starting point they are going to market to the satellite customers (over half a million customers!) to offer bundles. Satellite ARPU is ~$80/month. If they were aggressive and offered unlimited 100Mbs fibre to these customers for, say, $70 then the average satellite customer could have a fibre-sky bundle for $150/month . I think that is compelling, and they should have no trouble building their broadband footprint. The main benefit will be that they significantly reduce satellite churn and hang on to these high margin customers for much longer.

Other points of interest are that they are considering going into Mobile... and also will look to release Sky GO as a standalone product (as opposed to merely a companion to satellite subs). I think this will also be a good move (and overdue). Customers can stream a traditional Sky bundle but save on the MySky fee etc.

It would also mean customers can now stream Sky TV channels in two ways - Vodafone TV and Sky GO. There are more opportunities here to improve the bundles they offer. For example, because streaming is so much cheaper than satellite (in terms of the total distribution costs) they could do away with insisting on customers taking Sky Starter ($25.99/month). That only makes sense for satellite because there are a lot of costs sending out a tech etc to set up a new customer, provide the STB etc.
With streaming those costs don't exist. So if a customer just wanted Sky Movies, for example, give it to them. Say you can have Sky Movies for $20/month on it's own if you want, or it will only cost you $14.99 if you add it to another bundle etc). Don't quote me on the numbers, but the principle is there.

So I am broadly happy with where I see them taking the products - for the most part it is along the lines of what I have been thinking I would do if I was the digital product owner at Sky.

I imagine Spark will be somewhat concerned about these developments. Sky is now financially a lot stronger and can definitely exploit these opportunities. And, of course, Spark can't really complain like they did with the Voda-Sky merger. The previous Spark CEO took great pleasure rubbing Sky's nose in it when they won the RWC etc. But has Spark's entry into Sport woken the sleeping bear? Time will tell, but it is entirely possible that Spark releasing Spark Sport could be the most costly mistake they have made. Not because of any losses on Sports content, but because there is now the potential that Spark's market cap could drop significantly if Sky TV are successful at fighting fire with fire.