And there just isn't one.
Broadband is underwhelming. There may have been a growth opportunity if they started to bundle with streaming servives but for some unknow reason they have not gone there. Uptake from there STB base has been very low. Changing ISP's is a hassle so you have to give compelling bundles to attract people in numbers. It is still right that SKT offer broadband as a service I think, but there will not be big growth in this area for them.
The new STB, as you point out it is very late. The market still has no idea when it will be released and SKT are offering vodafone tv customers a glorified chromecast to try and bridge the gap while they sort out the new STB. Not great.
And even when they eventually roll the new box out, how successful is it going to be? I think they do need a new box, but the returns will have diminished by now as many people have moved on and are quite comfortable streaming. It is going to cost shareholders a tonne of money, and I expect uptake to be relatively low.
Most people who have MYSKY will stay put - it might not have a flash UI but it is tried and true tech. It 'just works', customers know how to navigate the system and it tends to be more reliable for live sport than streaming.
I also seriously doubt you are going to get a big spike in new business enquiries. People already stream by various means, to name a few:
- Smart TV
- Apple TV
- Smartvu box
- Chromecast
- XBox
- Playstation
What is it about the new Sky STB that would be a point of difference? The only real
potential point of difference is if the new box is very good at aggregating 3rd Party content with Sky content. But I suspect this feature will be very limited because it relies on the 3rd Parties giving permission to surface their content.
Smart TV's, Apple TV and proably others are already starting to do this where the 3rd party apps have given permisison. So Sky is late with their product to solve this problem as big tech are already working on it.
So the new STB is not a convincing growth story either. It was different 15 years or so ago when Sky rolled out MYSKY. From memory that project must have cost shareholders $100M+ however it was totally worth it and Sky made that money back many times over. But MYSKY was revolutionary at the time - there was absolutely nothing like it in the market at the time. The ability to watch one channel while three others recorded in the background! Absolutely mind blowing at the time as people began to be able build up their own watchlists and timeshift their viewing.
Things are so different now and the new STB is not going to be the MYSKY of our time. The point of difference just isn't there (or is so small that it is unlikely to be compelling. Even if the google search etc is quite good, are people who do not currently subscribe to Sky going to pay a $50-$100 per month sub to get it? I think not)
You add in the risks around key content renewals, and it seems more likely that Sky TV will be less valuable over time. And with the renewals, Sky is kind of screwed now whichever way it goes.
If they somehow did get an exclusive renewal with Warner-Discovery (highly unlikely!) it would cost an absolute fortune. Bye bye remaing FCF.
They might get a co-exclusive deal but it will still be expensive and I would anticipate NEON sub attrition as people want to give the HBOMAX+ (or whatever they end up calling it) app a go.
If they lose the rights altogether, well that would obviously be the worst possible scenario.
Then, I turn my mind once again to Spark. I do believe they are looking for an exit to Spark Sport. Vodafone have left the content game altogether (yet to be seen what wholesale deals they do with content providers). 2D has wholesale deals with Amazon and Sky - and will be happy to tick along with these, particularly while they complete their merger. Spark will almost certainly follow this trend and just stick with wholesale deals - it is the smarter option for these guys as they can offer value-add bundles to their customers with essentially zero risk.
Apart from Sky TV, nobody is realistically going to take Spark Sport though. I can't see anyone seeing any significant upside. But even if Spark effectivelty paid Sky to take Spark Sport off their hands, Sky's content costs are still going to increase. That means smaller underlying FCF, which means less investment and/or smaller dividends. This won't go down well.
And if Sky don't take Spark Sport off Spark's hands it will continue to be a thorn in their side as content rights come up for negotiation. Content rights will continue to inflate as sporting codes pull the 'we can always take our business to Spark' card.
So as I reflect on Sky TV now, no matter which way I look I can't see a compelling growth story, and I expect the market cap to fall considerably as events play out. I don't have a crystal ball, and this post might not age well - but from where I am sitting now this is how it appears to me.
Market cap currently ~$NZ385M. Do people seriosuly believe Sky will be worth more than that in the future? If so, why?
My very humble opinion - as always!
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