Sky TV boss Martin Stewart admits annoyance at flagging share price

Wednesday, 12 February 2020

Investors may not have come around, but Sky TV chief executive Martin Stewart sees reason for cheer in its latest numbers.

OPINION Sky Television chief executive Martin Stewart has promised to prove 'doubters wrong', just as investors appeared to quickly shrug off positive signs in the pay-TV firm's latest financial update.

Shares in Sky dropped one cent from their all-time closing low of 63 cents in early afternoon trading on the NZX on Wednesday, after seeming to get a brief fillip from Sky setting its sights on having a million online and satellite subscribers next year.

Speaking to Stuff shortly before the NZX opened, Stewart said every chief executive was 'annoyed at some point about where the share price is, and I am no different', describing the negativity as 'overdone'.

'I came into this job with a pretty clear idea, which was reinforced strongly by customers, partners and commentators about what we needed to do in order to create a sustainable and healthy future for Sky.

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'We have done everything that I thought needed to be done – and that people told me needed to be done – and yet the share price hasn't reacted in the right way,' he said.

'I, and the rest of the team and the board are firmly convinced that we are on the right path and I guess we will prove the doubters wrong.'

Stewart isn't the first chief executive to have a bit a whinge about their company's share price.

It can seem a bit lame to rail that 'the market has got it wrong'.

But of course that does happen.

MySky remains the easy option for TV viewing in hundreds of thousands of homes.

In November 2016, I was convinced that the Commerce Commission was going to refuse permission for Vodafone to take over Sky Television.

I stuck my neck out to say the merger was 'dead in the water', but investors didn't appear to take much note and Sky continued trading merrily north of $4.

So I decided to find out how one might go about profiting from an opinion such as mine, and set about learning how to 'short shares'.

With the help of Forsyth Barr subsidiary Leveraged I produced this hopefully handy guide a couple of days later.

But, no, I didn't actually short Sky's shares myself – which is a shame from my point of view as I'd currently be up more than 500 per cent on my investment.

I was right about the Commerce Commission decision of course, and zero genius on my part.

The commission had gone out of its way to flag to the public that it had concerns about the deal, that clearly were not going to be easily resolvable.

Just for some reason the regulator's comments weren't taken at face value by the companies themselves or many financial analysts.

Now though, I am starting to wonder if Sky shares might indeed be near rock bottom and be a 'buy'.

Most of the 'bad news' facing the company, including the possible disintegration of some of its coveted rugby competitions, would appear built into its share price – but perhaps for a couple of nagging doubts.

For one thing, I'm not sure investors will be guessing right about the price it has paid to retain some of its sports rights.

Commentary has suggested Sky paid $500 million to renew a five-year deal with Sanzaar, not the $400m it may first have offered.

But I am suspicious the figure is still higher.

Could it have paid $600m, or even more, and if so wouldn't it better to get that out?

All Stewart will impart is that whatever Sky pays for rights, it knows their value.

'I think that people are simply betting that we are not going to be successful.

'I think they are really overlooking the fact that we have secured [rugby rights] for the next five-and-a-half years that have secured the future of our business.'

Sky's decision last year to suspend paying dividends completely is also a concern.

Once companies get out of the habit of paying a dividend, history suggests it can be a difficult discipline to get back into.

Sky TV hung on to the rugby, but the true cost is still not known.

Even an annual dividend of 1 cent, now, would probably qualify the company as some kind of yield stock.

On the plus side, it seems the risk of further significant competition from Spark in the sports rights market has receded markedly.

And that is not only because their aren't many significant rights other than Rugby League and A-League football coming up on the horizon.

Spark's decision to sell its Lightbox streaming entertainment service to Sky – and Sky's willingness to buy it for $6 million – appears an olive branch offered and received.

It is also reminder that Spark does not have a track record of backing its new ventures through thick and thin.

Stewart won't say whether he is talking to Spark about a partnership in sports just yet, but I'd say the chances of a rapprochement were good.

'We have made no secret of our desire to work with everyone in the New Zealand media and entertainment space and Spark are the big guys in the market,' Stewart says.

'I'd like to leverage their sales and marketing capability. In the same way that we have done with Lightbox I hope we can find other ways to cooperate.

'I don't want to speculate further about what we are talking about with any particular party, but we are talking with everybody in the market,' he adds.

Netflix's price rises late last year have meanwhile eroded some of the value of Sky's largest competitor in the entertainment space.

Skilled though Netflix may be at using analytics to recommend programming to viewers, it can't yet match the convenience of using a MySky set-top box as a default platform for passive television viewing.

It definitely shouldn't be overblown, but the mildly reduced churn among Sky's satellite customer base reported in its interim results on Wednesday suggests a little more 'stickiness' is starting to appear within its still-eroding core customer base.

So I see some hope for Sky if it applies itself to the basics of filling gaps in its content – cheaply if possible – and maintaining its customer service, while not embarking on too many distracting adventures.

Would I put my money where my mouth is this time?

Probably not.