HBO, Sky Strike $250M Production Partnership

Courtesy of Sky


21st Century Fox owns a 39 percent stake in the European pay TV giant and has offered to take full ownership.

European pay TV giant Sky on Thursday reported its fiscal third-quarter subscriber and nine-month financial results and said it has struck a drama series co-production deal with HBO.

Productions in the partnership will start to come to the screen in 2018, with first projects already in development, Sky CEO Jeremy Darroch said on an earnings conference call.

The goal of the deal is to jointly develop big high-end drama series, which will help boost Sky's original output once the partnership gets to putting out two dramas a year. "We will collectively source ideas and then we'll greenlight those across the two organizations, so we will come together and decide which of the big projects do we want to get behind," Darroch said when asked on an earnings call Thursday about how the two companies will decide on co-productions. "That will give us an ongoing slate of high-quality drama that will be exploited globally ... in our home markets each of us, but obviously being able to sell it in other markets, too."

He called the partnership "a further step in the development of our relationship with HBO," owned by Time Warner, saying that "we think they are a fantastic organization, obviously brilliant creative leadership there."

HBO and Sky have long been working together. The Sky Atlantic network is the home of HBO across Sky’s five markets in Europe under a deal that currently runs through 2020. The two, along with France’s Canal Plus, also co-produced The Young Pope.

"Sky has been a great partner for us, and this deal allows even deeper collaboration between our two great companies, which have long tradition in creating superior content for our customers," HBO chairman and CEO Richard Plepler said about the production partnership. "Together we represent the best in television and combined we will raise the bar even higher in pay TV programming."

Darroch added: "HBO and Sky have for many years shared a common creative culture and a common vision for the development of high-quality drama. This new venture deepens that relationship, maintains our leadership position in world-class content, provides great opportunities for indies and gives our customers even more opportunity to enjoy brilliant storytelling."

The Sky CEO also highlighted that both companies can decide to pursue productions they looked at together outside the arrangement "if one side doesn't particularly want to do and someone else wants to pursue it," highlighting that Sky also co-produces with the likes of NBCUniversal and Canal Plus.

"It's just all a part of ... an ecosystem where we are trying to work with the very best producers and distributors around the world, because that is one of the ways we can get the bigger productions that give us greater cut-through, which we know is just becoming increasingly important, particularly in an area like drama," he explained. 

The CEO on Thursday also touted his confidence in the company's programming. "Our content has never looked stronger," the CEO said, lauding Sky's original series, which he said have been getting better, and its licensing deals with major Hollywood partners, including HBO, Showtime and the major studios.

Asked about the peak TV debate, Darroch said there is always the search for "the very best productions" and best ideas and talent. He added the important thing is to "get hopefully more than our fair share of the very best stuff." 

21st Century Fox owns a 39 percent stake in Sky and has offered to take full ownership. European regulators have approved the deal, with British authorities still reviewing it.

Darroch was also asked about the Fox News exit of Bill O'Reilly in the context of Fox's deal to take full control of Sky and whether the companies may need to make concessions to get it approved, but deflected the query. "I know nothing about that," he said. "What we are doing is just really staying focused on our business as always and just working through that." 

The O'Reilly controversy has come at a time when Sky is waiting for a report from U.K. regulator Ofcom, which is due in mid-May, on whether Fox's planned takeover of Sky raises public interest concerns and whether Sky would continue to be a "fit and proper" TV license holder. 

Sky early in the London morning reported nine-month operating earnings of £1.01 billion, or $1.30 billion, down 11 percent from the £1.14 billion recorded in the year-ago period.

“Significantly” higher programming costs due to the first year of a new Premier League contract boosted total costs by 8 percent in the nine-month period. Excluding the soccer deal, costs rose only 2 percent. Revenue for the period rose 11 percent, or 5 percent assuming constant currencies.

The company signed up 106,000 new customers in the latest quarter, its fiscal third quarter, compared with 177,000 in the year-ago period. Sky reports TV user additions, but doesn't provide breakouts for traditional pay TV and its online-only Now TV subscribers.

It ended the quarter it with 22.4 million customers, up from 21.7 million at the end of 2016. In the U.K. and Ireland, Sky added 40,000 customers in the latest quarter to end it with 12.7 million. In Germany and Austria, it added 73,000 customers to reach 4.9 million, while in Italy, it lost 7,000 customers, due to a contract dispute with Telecom Italia and economic uncertainty, to end the quarter with a total of 4.8 million.

"Looking forward, we enter the final quarter of our fiscal year in good shape. Despite the broader consumer environment remaining uncertain, we continue to deliver on our strategy and are on track for the full year," Darroch said.

Asked during the call to expand on the environment, he said consumer confidence has been weaker, creating "more of a headwind" and "more pressure on the business," but he said it was not preventing Sky from reaching its goals. 

Questioned about the effect of Brexit on the business sector and Sky, which operates in the U.K., Ireland, Italy, Germany and Austria, Darroch said details of Britain's European Union exit remain unclear, but also argued that media is still a "reasonably local" business, adding that "we’re still largely organized … on a country basis."  

Sky on Thursday also unveiled its latest virtual reality content project, entitled "Hold the World," with David Attenborough and London's Natural History Museum. "Users will get 'hands-on' access to rare objects, while a three-dimensional hologram of Sir David offers his own unique insight on each specimen in a one-on-one interactive experience," Sky said.