Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s been a Neon subscriber since 2019 but hasn’t had a Sky Box product since the mid-2000s.
Sky Network Television’s $1 acquisition of Discovery NZ – the old TV3 to those of us who woke up to be one of Russell Rooster’s Early Birds – is an easy deal to like.
For a start, it’s cheap. The nominal dollar’s fishhooks aren’t going to slice the pay-TV operator’s fingers too deeply if things go pear-shaped and the $10 million integration doesn’t pan out as intended.
It gives Sky the second-most watched free-to-air television channel in Three, which was reaching 17% of all Kiwis aged 15 and older in 2024, eclipsing the 12% of TV2 and more than three times the pay-TV operator’s Sky Open channel’s reach of 5%, which has been shrinking in recent years.
There’s no debt assumed in the deal – Three’s overdraft was $167 million as at Dec 31 – and Discovery has already gone through multiple purges, slimming down the operation to one that should be able to add value to the right owner.
Which in this case wasn’t US giant Warner Bros Discovery as it goes through its own crisis of identity separating its traditional cable arm from the future-facing streaming and studios business.
It was easy to look sceptically at the late Friday afternoon filing of Discovery’s NZ accounts and latch on to the endless pot of red ink the owner of TV3 has managed to accrue in its current incarnation, or even the burning fire that was its operating cash outflow.
But that would be disingenuous.
Sure, the figures show a company in trouble if all things stayed the same, but they also lay out the latest efforts to put its affairs in order as it gets laid to rest – hopefully with a Dr Who-like reincarnation on the cards and another season locked in for next year.
Only on 3
The debt-free status means it’s shed a $7 million annual interest bill and renegotiated leases strip out a $6.1 million annual bill once the 130 staff or so make the move to Sky headquarters.
The slashing of staff numbers rebased the wage bill, which had already shrunk almost $14 million to $36.3 million in 2024, and the $14.8 million of redundancies won’t be repeated. It’s unlikely to spend $3.4 million on consultants again either or pay a $3.7 million service fee to its parent.
What’s more, Discovery booked all its $36 million of programming rights in the year as an operating expense, rather than the typical capitalised accountment treatment, as their profitability became questionable.
Of that, $15.5 million was from other WBD entities, including $3.8 million from the local production house that was once Julie Christie’s powerhouse Touchdown Productions. And it had just $3 million of commitments to buy programming in 2025.
To put that in perspective, State-owned Television New Zealand recognised $171.9 million from amortised programming costs in the June 2024 year, and it wrote down the value of its rights by $29 million.
TVNZ’s internally generated programming cost $57.1 million and it bought $118.9 million from external production houses. Plus, it had $62 million of programming rights commitments for the June 2025 year and $45.4 million over the next four years.
For Sky, programming expenses were $391.6 million in the June 2024 year, and it added $335.5 million to its inventory of rights in the year, with $737.2 million of future content commitments.
Scale and cashflow matter when content hoarding wins.
No place I’d rather be
All told, Sky gets left with a very clean platform without the expensive, and potentially riskier, cost of inhouse production – something even the pay-TV operator’s been stepping back from since the 2021 outsourcing of the outside broadcasting capability that was the cornerstone of its live sports coverage for years.
And Sky gets an immediate $95 million annual injection to its burgeoning advertising revenue stream at a time the big streamers have worked out that traditional linear and cable networks were on to something in their push for advertising dollars.
Far be it for little old New Zealand to ignore the global trends, especially when Sky was largely trying to wait out the streaming wars for the great aggregation play to re-emerge as audiences get fed up a growing number of subscriptions polluting their monthly credit card statements.
Sky’s expectation of achieving positive cash flow from Three and friends in the first year isn’t looking so hairy, nor does the prediction of lifting earnings by at least $10 million from the June 2028 year.
No surprises then that investment analysts have largely given it the thumbs up and investors took the share price to a post-covid high of $3.17, with the heaviest weekly trading volumes since November 2022 and Devon Funds parent Investment Services Group emerging as a substantial shareholder.
And taking into account the fact that Sky’s forecast earnings before interest, tax, depreciation and amortisation for the 12 months ended June was $150 million-to-$170 million, it’s also not a game-changer for the pay-TV operator’s bottom line, despite the headlines of media-obsessed scribes and talking heads.
Because what it adds is a more substantial free-to-air platform than the old Prime channel – which Sky paid $30 million for in 2005 – that creates a useful outlet when pitching to sports administrators who place a rising value on a big audience, and also in funnelling those viewers to the more lucrative Sky Box if they get a taste of what’s on offer.
In an industry besotted with itself and constantly seeking silver bullets to fix its structural woes, you can’t help but like a sensible strategy that doesn’t promise the world.
Image from Glenn Carstens-Peters on Unsplash.