SKY Network Television (ASX:SKT) executives used the company’s FY26 interim results briefing to highlight strong underlying earnings growth, an improved cash position, and early benefits from the Sky Free acquisition, while also acknowledging pressure points in the consumer environment and continued decline in legacy Sky Box revenue.
Chief Executive Sophie Moloney said double-digit EBITDA growth reflected “a relentless focus on margin” and the resilience of a more diversified business model. She emphasized that the Sky Free deal—completed at a nominal purchase price—strengthened the balance sheet and boosted cash flow. After seven months of ownership, Sky recognized a NZD 34 million gain on bargain purchase, reflecting fair value of assets acquired for NZD 1, and said the transaction contributed to a “significant increase in free cash flow.”
Underlying performance and Sky Free contribution
New CFO David Mackrell, who joined about seven weeks prior to the call, said the largest driver of EBITDA improvement was a 6.7% reduction in the Sky standalone cost base. He attributed much of the cost reduction to disciplined programming negotiations and lower costs for one-off events. The company also saw a NZD 2.2 million reduction across other expense items due to broad cost management.
Sky Free contributed NZD 1.7 million in its first five months under Sky ownership, which Mackrell said was better than expected due to a lower cost base than anticipated. Sky Free also added NZD 35.6 million of revenue to the group over the five-month period included in the half.
Product trends: streaming growth, Neon softness, broadband momentum
Mackrell said underlying revenue was “solid” given market conditions, pointing to streaming and broadband growth offsetting a large portion of Sky Box declines.
- Sky Box: Management said customer churn improved “back to below 10%,” while ARPU rose due to improved sport penetration and sports pricing. Discounting remained elevated after “Project Migrate,” and the proportion of customers on the new Sky experience increased to 40%, which Sky said is helping reduce churn.
- Sky Sport Now: Revenue continued to grow, with customers up 17% and ARPU up 8% following a 10% price increase implemented in March of the prior year. Mackrell said the Day Pass, introduced in May last year, has been “incredibly successful” in attracting new customers and converting them to recurring monthly passes.
- Neon: Neon customer numbers fell 18% to levels “not seen since December 2020,” driven by a lack of acquisition- and retention-driving content. While ARPU improved and provided some offset, Mackrell called the result “disappointing.”
- Broadband: Sky reported broadband revenue up 37% and customers up 27% in a highly competitive market. ARPU was “relatively stable” after passing through a local fiber company price increase, and Sky said margin remains positive.
- Sky Venue: Revenue was stable, with Sky noting licensed premises were generally performing well, though some retailers were struggling and the accommodation sector had not yet returned to pre-COVID tourism levels.
Advertising scale expands with Sky Free
Moloney positioned Sky Free as a key accelerator of the company’s advertising strategy, citing increased scale in linear and digital, a larger digital audience, and a younger and more diverse reach. She said Sky Free expanded Sky’s digital audience to 1.2 million unique viewers each week, with a 71% boost in the 18–24 age group and an 87% increase in female audiences.
Mackrell said Sky had grown digital advertising from “nothing” to 16% of Sky’s standalone revenue over the past two years. With Sky Free included, Sky’s linear advertising revenue market share doubled to 35%, and digital now represents 20% of advertising revenue. He added that, with Sky Free, 15% of group revenue now comes from advertising. Management said a combined advertising sales team is now representing all Sky products and is intended to help accelerate advertising revenue over time, although executives acknowledged current softness in the linear TV advertising market.
Costs, capex and cash flow support dividend plans
On expenses, Mackrell highlighted a NZD 23.8 million reduction in Sky standalone programming costs, bringing programming to 48.8% of revenue in the half, within the company’s target range. Marketing and people costs also fell, while broadcasting infrastructure costs rose due to increased broadband customers and additional technology spend. Sky Free added NZD 33.9 million to the cost base over the period, including advertising, programming, and broadcast and infrastructure costs.
Underlying capex for the Sky standalone business was NZD 26 million, down NZD 13 million year-over-year, reflecting prior-year transmission equipment replacement and lower device spend after an accelerated inventory build. Capex landed just below Sky’s 7%–9% target band as a percentage of revenue.
Sky generated NZD 55 million of cash from the core business in the half. The closing cash balance rose to NZD 100 million, supported by one-off items including NZD 25 million of cash acquired through the Sky Free transaction and NZD 8 million of compensation from Optus. Mackrell cautioned that some working capital benefit is expected to reverse in the second half, largely related to Sky Free integration costs and payables, and indicated the reversal would likely be at the low end of a NZD 20 million–NZD 30 million range discussed in Q&A.
The board declared an interim dividend of NZD 0.15 per share, fully imputed. Management said this represented about 50% of full-year dividend guidance and was a 76% increase on last year’s interim dividend. Executives said the higher first-half payout should not necessarily be read across to future years.
Content strategy: sport strength and Neon reset, with HBO decision
Moloney said Sky’s sports strategy is underpinned by “deep viewership insights” and long-term agreements with staggered renewals. She cited the reset of the New Zealand Rugby rights agreement as having improved economics and an expanded content slate, and noted Sky has secured Olympic rights through to Brisbane 2032. She also said more events are being delivered in 4K UHD and that this supported an annual sports price rise.
On entertainment, Moloney said Sky completed a “data-driven review” of what customers watch and value, leading to new and expanded deals with Paramount and Sony. She said Sky concluded that not renewing HBO rights on a co-exclusive basis was the best decision for customers and shareholders, and described a move away from output deals to more flexible arrangements. She also said Sky replaced some pass-through channels with options it can curate, including Sky Comedy and Sky Kids.
Addressing Neon’s subscriber decline, Moloney outlined plans to deliver a steadier year-round cadence of titles and to rebalance the service from darker content toward a “premium mainstream approach.” She said Neon customers will see a refreshed identity and clearer content strategy, but she did not signal an immediate pricing change and said it was too early to provide specific expectations for performance without HBO.
Outlook and guidance
Management said economic conditions are expected to remain challenging and weigh on near-term revenue, while programming costs are expected to “moderate slightly” in the second half. With Sky Free integration progressing, Sky provided combined guidance including an 11-month contribution from Sky Free:
- Revenue: NZD 820 million to NZD 835 million
- EBITDA: NZD 145 million to NZD 160 million
- Capex: NZD 62 million to NZD 68 million
Sky reiterated dividend guidance of at least NZD 0.30 per share in FY26 and said it expects earnings growth to continue in FY27. Looking further out, management said it remains confident in delivering at least NZD 10 million of incremental EBITDA from group-wide synergies by FY28.
In Q&A, executives said they intend to review capital management options after completing the Sky Free integration, with an update expected alongside the FY26 earnings announcement in August, but they did not indicate a specific outcome such as a special dividend or capital return.
About SKY Network Television (ASX:SKT)
SKY Network Television Limited, an entertainment company, provides sport and entertainment media services, and telecommunications services in New Zealand and internationally. The company provides commercial music, broadcasting services, entertainment quizzes, advertising, content generation, subscription and marketing, and streaming and management services, as well as data analytics services for sports. SKY Network Television Limited was founded in 1990 and is based in Auckland, New Zealand.
