Sky Network TV shareholders were struggling yesterday to understand how the news the company had lost the rights to broadcast the English Premier League would affect their investments.
Sky shares closed on Tuesday at $5.67 but when news that Coliseum Sports Media had outbid Sky for the EPL rights, the shares opened yesterday at $2.27 before recouping some of that loss to trade at $5.39.
Shares closed last night at $5.43, down 4.43%.
Brokers said the shares were likely to trade in a tight range of between $5.30 and $5.50 as the announcement about the football was analysed.
Forsyth Barr broker Peter Young said while the announcement was not positive, it was not as negative as first thought.
''While we believe Sky TV has been a bit tight in its decision not to have written a bigger cheque to secure the EPL rights, this needs to be balanced out by the value proposition used to price all of its content rights.''
Sky negotiated about 25 content rights each week, of which around one deal per fortnight would be deemed high profile - such as the EPL, he said.
If Sky simply paid up to secure everything, that would be detrimental to investors, through a profit squeeze, and subscribers would lose as the higher costs of securing rights were passed on.
''Securing the EPL rights is a good headline win for Coliseum Sports Media but will it really be a profitable exercise? We don't think so,'' Mr Young said.
Among the reasons he gave was the small revenue pool in New Zealand for a dedicated football channel, excluding the Phoenix, All Whites and A-League.
Forsyth Barr estimated the maximum revenue from a maximum subscription of 10,000 viewers, would be $3 million for an online New Zealand subscriber base paying $25 per month for just EPL and a few other international leagues. If Coliseum tried to buy the All Whites and A-League broadcasting rights - both of which had been recently renewed for three to four years - the operating costs would escalate because of the need to produce the local New Zealand content. That was where a significant part of Sky's programming costs sat, Mr Young said.
Viewership for EPL content was niche and not as widely popular as perceived. Again, all the viewership statistics supported a local content bias for sustainable viewership over international content.
''This is true in other countries. Viewership is dominated by local and not international content. It will be fascinating to see what actual impact the EPL has on Sky and how many sports subscribers actually switch off Sky.
''It is easy to win content rights by being the highest bidder, but really hard to make a profit,'' he said.
Craigs Investment Partners broker Chris Timms said investors oversold Sky shares in the usual way of ''shoot first and ask questions later''.
''I wonder if it was the fact Sky lost the EPL or investors realised that competition was really out there. The EPL is small beer for Sky. Domestic content is the most important to Sky and it does not believe this isolated case changes the challenges associated with competing with Sky on the premium content.''
Rugby, rugby league, netball and cricket were the four big sports for Sky, he said. Rugby, rugby league and netball all had two or more years to run on their contracts. While Sky valued EPL by putting in its top bid, the EPL was not a great clubs and pubs event as most games were played between 11pm and 6.30am. A Sunday afternoon Wellington Phoenix home game typically had more cumulative viewers than the top four or five EPL games of that weekend, Mr Timms said.
Other content was always coming up and things available in the next few months included the Olympics, the Rugby World Cup and the Rugby League World Cup.
