Sky to Boost Spending on Originals by 25 Percent

Courtesy of Sky
Sky

The European pay TV giant also says it will launch an OTT service in Spain as it returns to profit growth in the final quarter of a down year.

European pay TV giant Sky on Thursday said it returned to earnings growth in the final quarter of its fiscal year, which recorded lower earnings amid higher sports programming expenses.

The company also said it will in the current fiscal year increase its investment in Sky original programming by 25 percent "as we build on our track record for producing world-class entertainment." Management didn't disclose its new annual originals budget, but said that the boost will mean an increase of well more than 100 million pounds ($131.4 million). Sky executives previously told THR that the company's annual spending on originals was about $750 million.

Management also hinted that it would continue to increase its annual originals budget in the coming years by similar amounts.

The company signaled the originals push would help it as it competes with streaming giants Netflix and Amazon. "Local dramas, such as Babylon Berlin in Germany, Britannia in the U.K. and the return of the third season of Italian crime drama Gomorrah, illustrate our strength in local programming that other SVOD providers cannot match," Sky said Thursday. "We are already working on our first major co-production under our new agreement with HBO, a big-budget drama documenting the true story behind the Chernobyl disaster, which we will air in 2019."

U.S. shows will also remain a focus. "Building on this year’s onscreen success means we will continue to broaden our offering, showcasing the best of the U.S., like the highly anticipated seventh [season] of Game of Thrones, Ray Donovan and the fourth [season] of The Affair," Sky said.

Rupert Murdoch's 21st Century Fox owns a 39 percent stake in Sky, led by CEO Jeremy Darroch, and in December struck a deal to take full control. The U.K. government has been reviewing the deal and has said it was likely to ask for a more in-depth review on competition grounds.

Darroch said on an earnings call with reporters that the company's results show that it has not been distracted by the Fox deal and its regulatory review in Britain. He reiterated that the company last week urged regulators for a "swift" decision on next steps in the review after an eight-month process. The U.K. culture secretary has said she expects to make a final decision on whether to refer the deal for a more in-depth competition review within weeks.

Darroch was also asked if Sky News staff felt unsettled as Fox has proposed to create an independent editorial board for Sky News and regulators may require additional conditions to approve the Sky deal, such as a possible separation of Sky News. He said people working for news organizations tend to "live and breathe in a lot of uncertainty, and that's why they exist, so they understand these things happen, I think they see the commitment from the whole team here to team." He added that Sky News has had a strong year and that Fox has been "a big investor in news as a business generally across the world."

The company, which has operations in the U.K., Ireland, Italy, Germany and Austria, signed up 686,000 new customers, which the company calls "group retail customers," over the last 12 months. In the previous fiscal year, it had added 808,000. In Germany, the company said it has in July reached the 5 million subscriber milestone.

But in the U.K. and Ireland, Sky only added 35,000 customers in the latest quarter, down from 93,000 in the same period last year and "even below the seasonally quiet third-quarter number," highlighted Liberum Capital analyst Ian Whittaker. He added that the "numbers do not look good."

Sky on Thursday also confirmed that it plans to launch a "simple and affordable" OTT service in Spain in a move that would bring its services to a new market.

Darroch on the call was asked about the recent debate about the gender pay gap at the BBC, which recently had to share details of pay for top on-air talent. He said the company would report data on it like all businesses and said Sky had no plans to disclose its talent pay.

He was also asked whether Netflix was a friend or competitor for Sky. "We’re trying to be friendly with anybody and always find common ground," he said.

For the fiscal year, Sky said its operating profit fell 6 percent to 1.47 billion pounds ($1.93 billion), with earnings before interest, tax, depreciation and amortization down 3 percent to 2.14 billion pounds ($2.81 billion). Full-year ‎revenue rose 10 percent to 12.90 billion pounds ($16.95 billion).

Fiscal fourth-quarter operating profit rose 8 percent to 455 million pounds ($598 million). "As we exit a year of investment, we returned to profit growth in the fourth quarter," Darroch said.

Sky's stock was little changed in early Thursday trading.

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