SKY is the pre-eminent pay television broadcasting service in New Zealand. It is listed on NZX and the ASX and had a market capitalisation as at 30 June 2014 of NZ$ 2.4 billion based on a share price of NZ$ 6.35 at that time. SKY's principal business activity is the distribution of both local and international programme content to its subscriber base, predominantly through a digital satellite network. SKY's revenue, NZ$ 909 million for the year ended 30 June 2014, is principally derived from monthly subscription fees (approximately 89%), installation fees and other revenue including advertising sales and the on-sale of programme rights.
In February 2006, SKY expanded its activities into free-to-air television by purchasing the business of the free-to-air broadcaster Prime Television New Zealand Limited for approximately NZ$ 30 million. In June 2010, SKY purchased outside broadcast operator OnSite Broadcasting (NZ) Limited (OSB New Zealand) from Australian media company, Prime Media Group.
SKY owns Fatso, New Zealand's premier on line DVD rental service, IGLOO, a pre-pay television service and also publishes two monthly magazines; SKYWATCH, the programme guide and SKY SPORT, the magazine.
Overview of the New Zealand television industry
There are approximately 1.6 million households in New Zealand . Providing television services to these households are two major free-to-air broadcasters, several smaller UHF operators and SKY, New Zealand's principal nationwide pay television provider and owner of free-to-air channel, PRIME.
Government owned TVNZ is New Zealand's largest television broadcaster with a combined 41.6% audience market share  through its two free-to-air channels, TV ONE and TV2. New Zealand's other major free-to-air broadcaster is MediaWorks, which broadcasts two channels (TV3 and C4) nationally and has a combined audience market share of approximately 15.5%.  Other free-to-air broadcasters include SKY's free-to-air channel, PRIME, which has a 4.7% audience market share,  MTS, Trackside and a number of local UHF broadcasters which each have a small market share.
As at 30 June 2014, SKY's pay television services had a residential household penetration of approximately 48.7%  and an audience market share of approximately 29.4%.
Under agreements with the broadcasters concerned, all the major free-to-air television channels – TV ONE, TV2, TV3, and C4 - are available on SKY's digital satellite service.
SKY provides all TelstraClear's pay television content through a reseller and retransmission agreement. TelstraClear transmits SKY programme content via its cable network to customers in the Wellington and Christchurch regions. SKY also has reseller and retransmission agreements with Telecom and Vodafone.
In June 2006, the Government established Freeview, to transition all free-to-air broadcasters from analogue to digital transmission. This is a hybrid terrestrial/satellite platform with satellite broadcasting commencing in May 2007 and the terrestrial broadcasting in April 2008.
Freeview content comprises all the major free-to-air channels including PRIME, plus Te Reo and TVNZ channels TV6 and TV7 and several regional channels.
Since 1990, SKY's terrestrial UHF transmission and linking services were contracted to Kordia, a state-owned enterprise operating transmission and network services. SKY's UHF network reached over 80% of New Zealand households. In March 2010 the transmission contract with Kordia expired and coincident with this, the UHF network was shut down. UHF subscribers transitioned to SKY's digital satellite network. SKY is currently considering the best use for the UHF network beyond 2010.
Digital content to SKY's digital subscribers is transmitted via satellite with coverage that can reach 100% of New Zealand homes. SKY estimates that there are more than 1.3 million households in New Zealand that have been installed with a satellite dish, representing approximately 80% of New Zealand homes. SKY currently leases seven transponders on the Optus D1 satellite, which it uses to broadcast its programme content throughout New Zealand. SKY has also agreed a restoration plan with Optus which, if successfully implemented, would restore satellite capacity within a short period.
As of 30 June 2012, SKY had a total of 846,931 subscribers, representing a residential household penetration of approximately 49.4%. SKY has consistently grown its subscriber base year-on-year since it first began broadcasting in 1990.
Figure 1: SKY's Total Subscribers
Source: SKY data
Wholesale subscribers predominantly receive their SKY content through Vodafone who have entered into retransmission and reselling arrangements (respectively) with SKY as described above.
Commercial subscribers (included in subscribers in the above graph) are generally non-residential customers such as bars, hotels and motels. These businesses receive SKY channels in packages that are tailored to their individual needs.
In December 2005, Sky launched "MY SKY", a hard-drive personal digital recorder. MY SKY subscribers paid a one-off installation fee to have access to a MY SKY recorder.
In July 2008 SKY launched MYSKY HDi, a new High Definition decoder and PVR with Dolby Digital surround sound, IPTV capability and increased storage. SKY currently offers 15 outstanding HD channels (SKY Sport 1, 2, 3 and 4, ESPN, ESPN 2, SoHo, SKY Movies Premiere, Extra, Greats, Classics, Action and, TV3 HD, TV ONE HD and TV2 HD).As well as HD Pop-Up channels from time to time. Subscribers have the option of renting this decoder for a monthly fee (currently $15).
SKY broadcasts more than 100 channels on its digital satellite platform. SKY uses this technology platform to tailor its programme offerings to meet customer content and price requirements.
SKY's digital service comprises a basic package (Start Up) together with a number of premium services, Subscribers to SKY's basic package receive a total of 58 channels including news, sport, documentaries, family programmes, general entertainment, key radio stations and free to air channels.
In addition to the basic channel package, SKY offers customers a choice of additional sports and movie programmes, and a number of other premium channels and subscription services for which they pay an additional monthly charge. Premium channels offered include five sports channels, six movie channels, The Rugby Channel, World TV, the Arts Channel and Country TV.
In the year 2000, SKY commenced scheduling selected content for subscribers on a pay-per-view basis, where subscribers pay a one-off fee to watch a movie or a sporting event. This service has been used primarily for blockbuster premiere movies, boxing and wrestling matches and adult content. SKY currently operates SKY Box Office, comprising 14 pay-per-view channels and expects to add additional pay-per-view channels in the future.
SKY also offers video on demand service for MY SKY and MY SKY HDI customers with more than 20 new pay-per movies downloaded to the PVR hard drives each week.
A low cost package is also offered to customers who wish to receive only the free-to-air channels retransmitted by SKY.
SKY purchases programme content from offshore and New Zealand production studios as well producing much of its own content, such as sports programmes. SKY offers subscribers a comprehensive range of sports, movies, entertainment, news, documentary and pay-per-view programme content.
SKY broadcasts a total of eight sports channels comprising four general sports channels, a sport highlights channel, a dedicated rugby channel and racing channels, Trackside through an agreement with the TAB. SKY has exclusive rights for the Super 15, the ITM Cup games, the Tri Nations and the Bledisloe Cup test matches. In addition to rugby, SKY currently broadcasts the most popular sporting events in New Zealand including the Olympic games, Silver Ferns Trans-Tasman netball, NRL rugby league, New Zealand domestic cricket, and international cricket played in New Zealand. SKY was also the host broadcaster for the 2011 Rugby World Cup and held the domestic pay television rights to this event. Sport content represents a valuable part of SKY's programme offering and has been a key factor in the retention and growth of its subscriber base.
SKY's six movie channels offer a comprehensive range of recent blockbuster and classic movies. Most movie rights are acquired from the major United States studios and are paid for in US dollars, predominantly calculated on a per subscriber basis.
Entertainment, news and documentary channels
SKY subscribers receive a variety of news, entertainment, documentary, lifestyle and children's channels. Content on the entertainment channels is acquired from a mix of global and regional and New Zealand based channel providers and studios.
SKY's specialist channels include WTV, (ten channel Asian television service), Star Plus Hindi and Adult entertainment channels.
Acquisition of PRIME
In February 2006 Sky acquired the business and assets of free-to-air broadcaster Prime Television New Zealand Limited for approximately NZ$ 30 million. At the time of purchase, PRIME had a television market share of approximately 5% and had extended its UHF signal coverage to over 90% of New Zealand households.
The acquisition of PRIME enabled SKY to schedule delayed free-to-air sporting events such as the Super Rugby and ITM Cup rugby games, NRL rugby league games and New Zealand cricket on its own network. Ownership of PRIME also provided SKY with a second television station facility and offers a potential home for "first run" television series sold via studio output deals. PRIME is fully integrated into SKY's operations providing cost and infrastructure synergies.
SKY's primary source of revenue is the monthly subscriptions paid by subscribers. The subscription packages offered by SKY are priced depending on the channels included in the package. In addition to revenue generated by SKY subscription services, SKY also derives revenue from the following sources:
Advertising: SKY currently sells advertising time on around 30 of its channels. Advertising has become an increasingly significant source of revenue for SKY in recent years. Total advertising revenue for the year ended 30 June 2014 was NZ$ 70.5 million. Advertising revenue growth has been driven by higher viewership and, consequently, higher revenue per minute and the increase in the number of channels on which advertisements are inserted.
Other Income: Other Income includes revenue from SKY's on-line DVD rental business, Fatso, revenue and the provision of satellite transmission services to third parties.
1 Source – Statistics New Zealand, October 2013
2 Source – TV Map/AGB Nielsen Media Research Nielsen for the year to June 2014
3 Source – TV Map/AGB Nielsen Media Research Nielsen for the year to June 2014
4 Source – TV Map/AGB Nielsen Media Research Nielsen for the year to June 2014
5 Source – SKY data
6 Source – TV Map/AGB Nielsen Media Research Nielsen for the year to June 2014