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SkyTV in its death throes

8 August 2017

I've already written about the lunacy which is the management of SkyTV but today, in the wake of a recent event, I must again focus my beady eyes on the future of this broadcaster.

As most of us know, for many years, SkyTV had a wonderful monopoly on the delivery of some content to our homes. Initially this was via terrestrial UHF broadcast using a very simple analog encryption technique, then they switched to satellites and digital technology.

Despite the ever-increasing prices being charged by SkyTV, people kept throwing money at them, sometimes quite significant amounts of money.

And, despite the fact that the set-top boxes cost a few tens of dollars to buy, customers were forced to lease the device at a rate that returned huge multiples of their value during the term of a contract.

This folks, has been a license to print money!

In fact, their effective monopoly was so strong that they even threw away one of the key factors in their initial success, freedom from annoying advertising -- yet still people signed up in droves and paid huge sums of money every month to the pay TV company.

Ah... but then came the internet.

Now all entertainment content is digital and those bits and bites can actually be sent around the world in a fraction of a second for far less than the cost of using a satellite link.

To compound issues, the UFB is being rolled out around the country at a frantic pace -- such that an increasing percentage of Kiwis can (if they wish) now watch UHD 4K video content via streaming. Sadly, SkyTV can't offer UHD 4K content at any cost and even their tired old HD streams command a price premium from customers.

Companies such as Netflix have gate-crashed SkyTV's exclusive party in a very big way and the the broadcaster is now losing subscribers at an alarming rate.

What I (and many others) find most perplexing about this situation is SkyTV's response to this situation.

A sane company with sensible management would fight back by trying to improve the value that their offering represented to the market.

The universal demand of all SkyTV users is that they want the ability to select only the channels that *they* want to watch, rather than be stuck with the expensive and inflexible packaging that SkyTV foists upon them. If people were only charged for the channels they actually wanted to watch then they'd be a lot happier. Yes, SkyTV's revenues would drop a little -- but it's better to have a customer paying 60% of what they were paying than to have no customer at all -- isn't it?

Strangely however, the crazy management at SkyTV have opted instead to hike prices in an attempt to make up for the revenues lost by a falling subscriber-base. Excuse me? Have they not heard of the laws of supply and demand?

Ah... of course... very few monopolies are familiar with this basic tenet of commerce, having been protected from "market forces" for so long by their monopoly status.

Effectively what's happened here is that SkyTV has been cast out from its insulated, cosy, warm position as a monopoly, into the harsh, competitive, rat-race that is real competition -- and they can't handle it.

As well as hiking prices, SkyTV have made the foolish move of making crazy-low-priced offers to attract new subscribers. Naturally this is really pissing off those long-term customers who've been paying through the nose for decades. One comment I'm hearing time and time again from those canceling their SkyTV accounts is "there's no reward for loyalty" -- and they're dead right.

Offering your neighbour exactly the same package of channels as you have but charging them half the price is not the way to retain existing customers!

SkyTV's other strategy now seems to be to litigate against anyone who might represent "competition".

They threatened to sue any ISP which offered free proxy or VPN services to customers for the purpose of sidestepping the geofencing that companies such as Netflix have implemented.

And now they're suing a couple of outfits that have been providing preloaded KODI boxes that allow access to TV shows, movies and other streamed media from around the world.

It is very clear that SkyTV has become a company which is bereft of ideas and feels that it is better to litigate than innovate. And thus the giant shall fall.

"But wait" I hear you say. "Sky still has valuable sports content that Kiwis will pay huge sums to watch".

You are correct but I have a strange feeling that this will not protect them from the fate that awaits them.

Why?

In a word - Amazon Prime Video.

Okay, that's three words (so sue me Sky :-)

Around the world, Amazon is buying market share for this service by securing the broadcast rights for a growing number of sports events -- including rugby.

If little old SkyTV in New Zealand think they can win a bidding war for rugby broadcasting rights against Amazon.com then their management is even more deranged than even I thought.

Amazon has hugely deep pockets and as we've seen over many years, it is still in growth mode so would think nothing of paying many times more than SkyTV could afford -- not because they could earn a profit on that investment by screening the rugby but because they could win all those subscribers who are currently only loyal to Sky because of their exclusive sports coverage.

Now surely SkyTV's management can see this bullet coming... although probably not.

Their decades of operating as a monopoly have left them ill-equipped to compete in the new world of digital broadcasting over the internet. Even their feeble attempts at delivering a streaming video service have been an embarrassment to them with NEON crashing and burning again just last night.

What amazes me most is that people are still holding on to their SkyTV shares at this point.

I guess this is a clear indication that the average Kiwi investor can't tell his arse from his elbow because even setting aside the unstoppable decline we're already seeing as a result of the ridiculously poor value being offered, the moment Amazon steps in and takes the sports rights, Sky shares will be worth nothing.

As with Indranet, as with the MJP, as with so many other tech-based ventures that I have so successfully predicted as investment disasters in the past, now I'm advising SkyTV shareholders to sell as quickly as possible -- while there's still some value in those shares. Less than a year ago, Sky shares were worth about $5. Today they're worth just $3.35.

Bookmark this page and let's see what they're worth in another 12 months -- I'm picking it will be below $2, even if Amazon haven't made their move by then; and if the rugby rights are lost then Sky shares will be measured in cents rather than dollars.

You can't say you haven't been warned.

The above column is opinion only and should not be considered investment advice. Whenever investing in or divesting themselves of shares, people should do their own due diligence..

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