Sky Television directors face some daunting challenges now the Commerce Commission has turned down its application to merge with Vodafone New Zealand.
The company opened at $3.60 yesterday after investors abandoned the pay-TV operator. However, the price recovered later in the day to $3.80, down 12.6%. Sky TV and Vodafone will both now have to assess their positions after the commission specifically mentioned premier sport being a stumbling block to the approval. The commission indicated it would have probably approved the merger but for the fact it would have allowed Vodafone to acquire premium sports.
Sky will need to consider if it will challenge the decision and both companies will need to determine if a new proposal is possible.
Craigs Investment Partners broker Chris Timms said once the decision was made, market focus returned to the financial performance of Sky TV and that was why the price had slumped yesterday.
Sky TV needed to address why it was losing subscribers. It faced more competition from Netflix, Lightbox and Apple TV but still had sport exclusively.
"If it wasn’t for sport, particularly cricket and rugby, they would lose more subscribers. Many people have just Sky Basic and sport. Sky obviously cannot compete in its current form so it needs to make changes," he said.
Forsyth Barr broker Suzanne Kinnaird said Sky TV had looked at the merger as the most appropriate response to the challenges it faced from new competitors and changing viewer patterns.
Sky must now make changes to respond to those challenges.
A falling premium satellite subscriber base, increasing content costs and issues with perceived value of that service were major questions for Sky.
"The option of restructuring the proposed merger will very much depend on the final concerns of the commission. If those concerns can be mitigated without destroying the value of the merger, then this is possible."
Appealing the decision would require confidence the commission made a mistake in the process it had applied. The biggest question would be the willingness of Vodafone Group Plc to challenge a local regulator’s decision. Sky TV, as the local operator, might be far more willing to do this. However, it was not an option to take lightly, she said.
Sky TV chief executive John Fellet issued a short statement saying he was disappointed with the decision.
"From here, we will continue to strive to deliver innovative ways to curate and deliver entertainment to all of New Zealand."
Spark and 2Degrees had already received a stay in the merger, had it been approved. Both companies are seen to be winners in the application being declined.
Spark chief general manager regulatory affairs John Wesley-Smith said the telecommunications company was generally supportive of market consolidation where it led to better outcomes for consumers.
The lack of modern on-demand options for how New Zealand sports fans could access "must-watch" premium sports content, which would have been exacerbated by the merger, meant the merger was not in the best interests of consumers.
"While Sky will no doubt be disappointed with the outcome, we believe there is still a line of sight to a promising and sustainable commercial future for Sky."
Spark, alongside several other broadband and mobile providers, would welcome the opportunity to bundle modern, on-demand versions of Sky’s core sporting content with its broadband and mobile packages — if Sky was willing to create a wholesale market for its content, he said.
The decision recognised the sports content market in New Zealand needed to catch up with consumer reality, as it had in other markets around the world.
Consumers were increasingly demanding greater choice and flexibility as to how they accessed premium content, Mr Wesley-Smith said.
