A cooler consumer market sees Sky now facing the same pressures as its SVOD competitors, with a loss of pay-TV subscribers in the UK.
However, Sky is performing better in telecoms in both the UK and Italy. These markets are less susceptible to recession with Sky also benefitting from its position as more of a challenger than an incumbent.
Uncertainty continues to loom over both the sale of its German platform and the upcoming allocation of Serie A rights in Italy.
Vodafone's headline revenue growth of +3.7% is actually a small decline once Rest of World exchange depreciation is accounted for. Europe, however, delivered an improving revenue trend to +0.4%, as signalled at Vodafone's FY results announcement.
The mix and operating trends are less positive, with growth driven by low-margin B2B, and subscriber losses accelerating in German fixed. Investors will be weighing up whether these results are green shoots of a recovery or another false dawn.
Although the company may reach its guided EBITDA on assumed exchange rates, it looks set to fall short in euro terms, which has implications for FCF and dividend cover.
Sky has withstood the consumer crisis better than its telco peers, but owners Comcast are stepping up pressure nevertheless.
No buyer for its German unit has yet emerged. In Italy, the outcome of the ongoing Serie A rights auction will shape that company’s growth prospects.
Looking forward, Sky has built a solid content supply line and is likely to strengthen further from the deflation following the end of the SVOD bubble.
Providing home broadband connections via a mobile network (FWA) is gaining traction in certain markets where local conditions make it a viable alternative to fibre, such as New Zealand, Italy and the US.
FWA is a time-limited opportunity for most, with mobile traffic growth absorbing capacity for it and fixed traffic growth depleting the economic case. An ultimate shift to fibre is the best exit strategy.
In the UK, H3G's spare capacity could support up to 1 million FWA customers on a ten-year view—enough for a meaningful revenue fillip for H3G, but not enough to seriously disrupt the fixed market.
Sky is coping reasonably well with the shock of retrenching consumer spending, with revenues almost flat in Q4 2022.
However, profits are under pressure, as the increases in Sky’s costs cannot be fully passed on to customers, and the product mix is rebalanced towards telecoms and variable costs.
Management continues to leverage Sky’s brand strength and its critical mass of consumers to enter new markets, this time with home insurance.
Sky maintained strong revenue growth of 5% in 2017/18, with EBITDA and operating profit both bouncing back into strong positive territory after the UK Premier League rights hit of 2016/17
The UK grew revenue well and profits better; Italy performed well and should improve much further given the retreat of its principal competitor; Germany is more challenged, but extra content investment may aid sustained growth
Sky is proving adept at managing content costs and revenue in a changing environment, with investment, cost control and monetisation all being put to effective use as the content type demands it
Many European telecoms operators are pursuing a fixed/mobile convergence strategy on the pretext that the addition of mobile reduces churn. We see no evidence of churn reduction from this strategy
Discounts required to encourage take-up of fixed/mobile services are often value-destructive, even before competitor reaction: a 10% bundle discount necessitates a 2ppt improvement in churn to wash its face economically. M&A premia on the basis of convergence synergies raise the hurdle even higher
Most UK operators offer very limited discounts on fixed/mobile bundles for now, sensibly focusing on enhanced services. Vodafone is the most aggressive, albeit less so than it is elsewhere. All UK players should hope that it stays this way
Italy’s top football league awarded Sky the broadcasting rights to seven games per week from August 2018 until May 2021 for €780 million per year, up €208 million. UK-based Perform will carry three games for €193 million. Mediaset exits the market, freeing Sky from price competition
Besides Serie A, Sky added Mediaset’s Hollywood series and films to its content line up in May and will include the Champions League from August. We expect costs to rise by up to €500 million per year, which could be recouped by cuts in content and by recruiting Mediaset subscribers, notably on Sky’s new DTT feed
The best model for Perform would be to wholesale its new DAZN service to Sky, but even if a deal is found we doubt it could break even within the rights cycle
Sky H1 results were very solid, maintaining 5% revenue growth and 10% EBITDA growth, with Sky continuing to support a widening product portfolio and more expensive core products with strong cost control and execution
Subscriber volume growth was a little weak at the margin, but this will be helped by all-IP products expanding the economically addressable base in new, and existing, markets
There remain questions on content, with the outlook for premium football rights uncertain in the UK and Italy, and investment in Originals questionable given a mixed track record, but certainly with upside
Sky delivered 5% year-on-year revenue growth over the first nine months at constant exchange rates, although operating profits fell due to several factors, most notably the massive step-up in UK Premier League TV payments under the new contract
On closer inspection, relatively weak UK & Ireland Q3 revenue growth compared with previous quarters largely reflects one-off special factors
Otherwise, positive quarters for Sky Germany & Austria and Sky Italy and improving cost efficiencies suggest that the Sky Group remains broadly on track to deliver its Investor Day 2016 guidance objectives