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European Pay-TV Operator Sky Sees Profit Fall 9%

Variety logo Variety 1/26/2017 Leo Barraclough
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European pay-TV operator Sky on Thursday reported a 9% fall in operating profit to £679 million ($859 million) for the six months ending Dec. 31, which it blamed on the £314 million ($397 million) rise in the cost of English soccer rights.

Revenue grew 12% to £6.41 billion ($8.1 billion), with the U.K./Ireland up 5% to £4.27 billion ($5.39 billion), Germany/Austria up 31% to £907 million ($1.15 billion), and Italy up 30% to £1.24 billion ($1.56 billion).

“We have delivered a strong first-half performance across the group, continue to make significant progress against our strategy and remain on track for the full year,” Jeremy Darroch, Sky’s CEO, said in a statement. The company’s financial year begins July 1.

“Across the half we have continued to drive customer and product growth in all our markets, adding over 500,000 new customers – faster growth than last year – and selling 2 million products,” he added. “That means, in the past three years and since the Skys have come together, we’ve now added 2.5 million customers and total products are up almost 25%.”

In the U.K./Ireland, churn was 11.6% on a 12-month rolling basis; in Germany/Austria it was 10.6%; and in Italy it stood at 9.5%.

Looking ahead to 2017, Darroch said in a press call: “We think the consumer environment is likely to remain uncertain, but we will manage what is in front of us; we will stay focused on executing our plan and staying flexible.”

Asked about Discovery’s threat to pull its channels from Sky amid a dispute over a new carriage deal, Darroch said: “It’s a difference of opinion on Discovery’s performance really. That’s what the dispute is about. The fact is, their share of viewing in linear has been in long-term decline… The Discovery portfolio performs [on demand] at a third of what it does in linear at best.”

He added that Discovery isn’t producing “the big shows that people expect and pay for.” He said he couldn’t recall there being a single Discovery show in Sky’s top 100 programs across the platform. “So we need to adjust, and what we’ll do is we’ll just spend where our customers see value.”

Darroch said that the 14% decline in the dollar value of the British pound since the Brexit vote in June had not led Sky to try to re-negotiate its existing content pacts – both output and carriage deals – with U.S. suppliers. He said that Sky was “very well-hedged, so that gives us protection [against currency fluctuations] on the [profit and loss] line for a reasonable period.”

He said: “The major point of any re-negotiation doesn’t start with money, it starts with quality: What is the performance? Which are the producers that are really stepping into this new world of on-demand? How are we getting access to better cut-through programming that our customers really value? And how can we work upstream with producers to evolve the franchises that our customers love?”

In its statement, Sky said its exclusive output deals with Showtime and HBO would deliver returning series like “Billions,” “Ray Donovan” and “Game of Thrones,” as well as the rebooted “Twin Peaks” and new show “Big Little Lies,” starring Reese Witherspoon and Nicole Kidman.

Sky’s original shows would add 11 drama series and five comedies across the year. These include the return of crime series “Fortitude,” starring Dennis Quaid, the third season of Italian crime drama “Gomorrah,” and the new German drama “Babylon Berlin.”

This year, Sky will have 100 series in production, totaling more than 1,000 hours, including 15 new dramas, such as “Britannia” and political drama “Guerrilla,” starring Idris Elba.

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