Sky TV's razor gang prepare for Rio blood-letting

Pay-TV company Sky Network Television is discussing possible cost-sharing for the Rio Olympics with Australian sister company Foxtel.

Both companies are part-owned by Rupert Murdoch's News Corporation – Foxtel 50% and Sky TV 43%. They already develop set-top boxes and their work together pre-dates News Corp's investment in Sky.

Sky TV ceo John Fellet says his company is in discussions with Foxtel about Rio, after Sky agreed to take eight high-definition feeds from the recently-finished London Olympics, leading to an earnings hit in the millions of dollars.

"Is it kind of crazy for us to both bring back the 100 metres with separate commentary?

"Or would it make more sense to take the BBC commentary, assuming BBC does it in Rio de Janeiro, or say we'll do rugby sevens because that's our expertise and you do the 100 metres, if that's what you want, and we'll kind of split the cost?

"Those are options."

He has also left the door open for deals with local broadcasters TVNZ, TV3 and Maori TV.

Mr Fellet says there were too many HD channels from London but he is reluctant to say there will be fewer channels from Rio if Sky's bid is successful.

He wants the bid to be in within a month.

"We're working on a plan that gets us about 90% of the value with about 50% of the cost. If we do that I think this thing becomes perfect for us. If it can't, we're happy to pass on it. There's other content to go after."

Cornucopia of problems

What went wrong with London? Too much paid upfront? Too many people sent to the games or an overblown estimate of customer gains?

Mr Fellet says: "All of the above, probably."

TV ad revenues this year are about the same as in 2007 – when the London deal was signed – so, he says, there was no commercial upside there. Also the embrace of HD technology was not seriously considered five years ago.

The Rugby World Cup led to a bigger net-gain in subscribers, he says, while the Olympics was better for MySky and HD upgrades.

The original planned Olympics coverage involved coverage on Prime and two Sky channels – "so pretty cheap".

"We could have stuck with that and we probably should have, but the Olympic broadcasting organisation kept coming back and saying we'll build a whole channel for you, and then we'll build two channels for you and we can three channels. 

"And they kept building additional channels and we kept taking everything they had to offer.

"We'd already paid the money, so the rights weren't costing us anymore but the extra feeds required satellite links, and eight HD satellite links is a pretty expensive proposition basically running 24 hours a day for 19 days.

"We could have cut back but I wanted to see exactly what potential we had in this thing and push it as hard as we could, and we did, and it generated fantastic viewership numbers."

Prime got more viewers in 16 days than it would normally get in two months, and Sky got a related lift.

Mr Fellet says Sky will get a bigger lift in subscribers if it wins the Rio rights because people will know to expect wall-to-wall coverage.

"If we can fix some of the economics around the deals and the cost of transmission and that sort of stuff it changes things radically."

Like when Sky started covering super rugby and trans-Tasman netball, he says, it took three years to break even.

"We've got a pretty good track record in guessing right with programming costs. This time we guessed wrong. And you delight in your victories and you just patch up your wounds on your defeats and move onto the next one.

"It's a poker game and there's always another game right around the corner."

ForBarr note: result had subscriber surprise

Forsyth Barr analyst Rob Mercer says in a note published today Sky's full-year earnings were in line with expectations but net subscriber growth was surprisingly flat.

"For all the good progress SKT is making expanding and strengthening its business, the drag on earnings is unlikely to help drive its share price in the near term."