Sky Touts Originals, Movie Deals at Investor Day, Dennis Quaid Makes Appearance

Courtesy of Sky
Sky

The European pay TV giant, in which 21st Century Fox owns a 39 percent stake, also discusses Netflix, Amazon and sports rights, among other things.

The stock of European pay TV giant Sky dropped on Thursday despite a bullish investor day held in London.

Management focused on the growth upside across the company's markets, namely the U.K., Ireland, Italy, Germany and Austria, and repeatedly touted its attractive content, including film output deals with the major Hollywood studios and a growing original series business.

Sky CEO Jeremy Darroch early in the day said that amid increasing choices for consumers Sky was focused on "offering the widest range of quality entertainment" and letting customers "build the packages that best meet their needs."

In addition to touting the company's sports and movie rights and saying it was a great partner for content companies, he highlighted Sky's increased focus on original content, such as Fortitude, Penny Dreadful, The Young Pope, Guerilla and Jamestown. "We’re building a really, really brilliant content business," which is the leading content business in Europe, Darroch said. He said it was a "very significant growing part of our business."

Mai Fyfield, chief strategy and commercial officer, in a session during the investor day provided a deeper dive into Sky's content business, followed by Gary Davey, managing director of content, who spoke about the company's "strong and growing capability in origination."

Davey told the audience that Sky works with "passion scores" to evaluate TV series and their appeal for viewers. He said Game of Thrones has the highest passion score of 9.4, while Sky original Penny Dreadful has a 8.2 score. In comparison, ITV's Downton Abbey had a 8.1score.

He touted that Sky is working with such strong content partners as HBO and Showtime on co-productions.

Davey also brought to stage Fortitude star Dennis Quaid and executive producer Patrick Spence for a brief discussion of the Sky original. Quaid, who has joined the show for its second season, was asked about his journey from film to TV, saying that in the old days film stars didn't really want to do television because of the quality of writing and production. "Starting about five years ago, that all changed," Quaid said. "It's the new independent film, which film studios aren’t making anymore.”

Spence was asked about the shutdown of the Pivot network, which had Fortitude in the U.S. “Sadly they’ve closed down, a good example of how hard it is to survive … as a network," he said. "Although we are very sad to lose them, the scale and ambition of the show and the quality of the second season in particular has meant that we’re about to sign with a very, very big partner for both seasons.”

Would Quaid be willing to do another season of Fortitude? Replied the star: "I'm willing to start next week, in fact." He added: "Sky is really positioned very well. One of the attractions of coming to do Fortitude, [in addition to] a great story and a great script, was to be in another market over here. And it's becoming more international in the states."

Stephen van Rooyen, CEO of Sky U.K. and Ireland, highlighted continued growth despite such newer players as Netflix and Amazon and their original series. “Our original production business is actually really also gaining scale," he said. "Last year, we delivered as many original series as Netflix will deliver this year.”

And he argued: “What makes our offer work so effective is the mix of acquired content and original programming.”

Addressing Sky’s movies offering, van Rooyen said: “We offer the world’s best and most complete movies service, in a market where there has been more choice for customers than ever before. Today we are by far the biggest movie service in Europe.”

He also said that despite increased competition for sports rights, the company expects to continue doing well in sports. "Sky Sports has the brand, positioning capabilities, understanding, optionality and flexibility to continue to ensure that if you are a sports fan you will want Sky Sports," he said.

Management said in that context that Sky is looking to prioritize key sports rights, with around 80 percent of sports rights set for the next three years, and also lauded the company's multi-year studio deals.

Sky's stock closed the London trading day at 8.25 pounds ($10.08), down 3.6 percent. That was closer to its 52-week low of 7.70 pounds than its high of 11.34 pounds.

Investors and analysts have this year often focused on the more mature traditional pay TV business in the U.K. and rising costs for sports rights, such as English Premier League soccer. 21st Century Fox owns a 39 percent stake in Sky, and analysts have repeatedly wondered if the conglomerate could make another bid for full control amid the lower stock price and a weak pound following this summer's Brexit vote.

Darroch kicked off the investor day on Thursday by highlighting the company's "ethos of perpetual improvement." With the entertainment and pay TV industries changing in the digital age, he said: "We embrace change." And he said: "We have built an organization that thrives on change and renewal.”He also argued that Sky is "driving and leading most of the changes that are around us today."

Change is key to staying relevant and meeting customer needs and can lead to "even better returns for our shareholders," he said, vowing his team was focused on "building a bigger and better business." Importantly, the company is not only about traditional satellite TV anymore, but also OTT, broadband, content and a coming U.K. mobile service, which will be unveiled in the near future. "Sky is broader, it's better and it's more diverse than at any time in its history," Darroch said.

Sky COO and CFO Andrew Griffith then told the investment community about how Sky is seeing revenue growth driven by different parts of the business in different markets.

In the U.K. and Ireland, its focus is more on upselling consumers to more and newer products and services. In comparison, Germany and Austria is wholly about customer growth as pay TV penetration there is still low, which should mean higher revenue growth, he explained.

Sky Deutschland CEO Carsten Schmidt told the investor day that the company has big, untapped potential and there has never been a better time for Sky in Germany, the biggest TV market in Europe. "Size, demand, money, passion for TV — the ingredients for success are there," he said. "The fastest growing TV sector in Germany is the pay TV market” and there is "a clear sign of a structural shift from free to pay taking place today."

Sky Italia CEO Andrea Zappia, meanwhile, touted subscriber growth and rising average revenue per user. Plus, he highlighted that Sky Italia is now producing such original series as Gomorrah, which drew the highest ratings ever for a scripted show on Sky Italia; HBO and Canal Plus co-production The Young Pope; and 1992, a political thriller that drove record ratings in Italy.

Davey commented on Sky's focus on select markets in comparison with Netflix's global offering. "I'm very lucky, because I don't need to worry about whether Orange Is the New Black is going to be relevant in Kuala Lumpur. We are just working to make Babylon Berlin relevant in Berlin. Living in the market that you are serving is this incredible advantage against any global competitor." He added: "I don't feel in any way threatened. Having said that, we love competition."

Management also signaled that it could make Netflix available via Sky set-top boxes if the experience is good, arguing that such offers must live up to their promise for consumers.

Sky on Thursday also said that it will start taking registrations for Sky Mobile, its O2-powered wireless service, on Oct. 31. The launch, further details of which will be announced at a later date, will make the company a so-called "quad-play" provider by adding to its TV, broadband and telephony services.

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