Sky TV caught analysts on the hop this morning when it said chief executive Martin Stewart had quit after just 21 months.
The pay-TV operator’s chief operating officer Sophie Moloney had taken over with immediate effect, although Stewart would be on tap in a consulting role for three months. There was no change to Sky’s recently upped guidance.
Forsyth Barr analyst Matt Henry had a two-word initial reaction: “I’m surprised.” (More from Henry and other analysts below.)
So what can we expect from the Moloney era?
For staff, an apparent end to the sort of upheaval that’s hit so many media companies as the pandemic has landed on a sector that was already under pressure.
“The concept I talked about this morning was kotahitanga, or unity,” she told the Herald, just a couple of hours after her official appointment.
“This was a very tough year. We had to say goodbye to a lot of Sky employees, which is never a place you as an exec team or a board want to be in. But we’ve come through that process. Now is about bringing everyone together.”
There will be “no let up” on Stewart’s strategy to push streaming and move into broadband.
“But I suppose what I would say is I’m a Kiwi, right? And I think that 2020 is one of those years that has challenged all of us in many different ways. So my resolute focus over the next few weeks at least, is all about our Sky crew,” Moloney says.
“The initial challenge is making sure that all of our people feel supported, and that they know that this is a great place for them to work.
“That real focus on the team is something that, I suppose, is a different focus than has been here before. And it’s something I’m really keen to lean into.”
Moloney was already first-drop to succeed Stewart in the event of his departure, under a succession plan put in place by the board, “Although I confess it’s been a bit accelerated.”
Moloney – who spent two years at King’s College in Auckland before completing a law degree, with honours, at Canterbury – arrived at Sky TV in January 2018 as general counsel.
Before that, she had trodden the same path through the Middle East as Stewart, serving as chief legal officer at Dubai-based pay-TV provider OSN, where Stewart was chief executive. Earlier, in the 2000s, both were at Sky in the UK – Stewart as CFO and Moloney as a legal adviser.
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At Sky TV, she was promoted to chief legal, people and partnerships officer in mid-2019, then to chief commercial officer in July this year.
The announcement certainly came as a surprise, and given that Sky is only “mid-stream” through a number of major initiatives under Stewart.
Also his reasons for exiting, considering that multiple vaccines are coming on to the horizon, and the potential for border restrictions to loosen during 2021.
“Sophie’s recent achievements include securing the commercial agreement with Spark to secure Rugby World Cup rights for pubs and clubs around New Zealand, leading the team that secured New Zealand Rugby and Sanzaar rights, negotiating the new Optus satellite agreement and spearheading Sky’s purchase of entertainment streaming service Lightbox,” Sky chairman Philip Bowman said this morning.
The new CEO says Sky is on track to delivering on Stewart’s plan for 2021, including the company’s push into the broadband market.
But when pushed, she said there will be a few tweaks, or curbs, on her predecessor’s ambitions.
At Sky’s AGM in October, in response to an investor question about whether Sky would follow its broadband play with a move into the mobile market, Stewart replied. “It is just a matter of time. Just like broadband, we see this as a big opportunity for us.”
Today, when the Herald put the same question to Moloney, she responded in far more cautious fashion, saying it would have to add value for customers. “I think that’s the right lens to look at it. That’s what broadband is about. If mobile makes sense in that context, and we can deliver more value alongside our content … then, yeah, absolutely, we’ll have a look at it. I know the regulatory environment, with mobile, is not as favourable as it is for going into broadband, so that’s something we’ll have to think about.”
Similarly, while Stewart has been all-guns-blazing about a new, Android-powered set-top box, which would offer 4K ultra-high definition and allow Sky customers to install third-party apps from the likes of Netflix, Amazon and even Spark Sport, and appear in FY2021, Moloney is more reserved.
If the Android box previewed to investors is indeed put on hold, or modified, it will be a third change of tack after Stewart nixed his predecessor John Fellet’s plans for a similar Android box.
“That’s an important part of our road map,” she says. But no details are set in stone. “Whether it’s Android or something else, in terms of the tech specs, that’s something we obviously need to do more work on with the team,” she says.
Stewart on his abrupt departure
Stewart cited the “likelihood of further Covid-19 border restrictions” for his decision to depart. The departing CEO told the Herald it felt like a good time to depart after driving through two years of change, and a pause before his company’s push into broadband next year. But it was also a factor that in his first year in the job, he was able to travel back to the UK, where his varsity-age children live, a number of times. The pandemic put a stop to that in 2020.
He declined to give an exact timeline between his decision to leave and today’s announcement but did offer “It was a short period of time. It obviously takes at least a week or so to organise these sorts of things. The reason why we’ve been able to move so quickly is because of the fact that Sophie’s an excellent replacement and was just sitting there waiting to take over.” He did not have a new position lined up.
Among other factors,Stewart’s abrupt departure was a surprise in that he had recently bought more shares in Sky. A September 11 filing disclosed he had raised his stake from 1,036,000 to 1,286,000 shares as he picked up 250,000 shares worth around $37,500. (A spokeswoman confirmed it was an on-market purchase, not part of any bonus or other compensation scheme.)
The pay-TV broadcaster recently upped its profit guidance, and flagged the likely return of its dividend. And analysts have generally given Stewart high marks for his digital-first makeover, and quick moves to replace nearly every senior manager employed by his predecessor, the long-serving Fellet.
But the Englishman was unable to reverse Sky’s long-term share slide. He secured a new five-year deal for top-tier rugby, only to see the sport upended by Covid and South Africa’s Super Rugby rebellion. Spark Sport continued its incursion, grabbing domestic cricket rights. And although Stewart expanded streaming service Neon, the challenges of over-the-top content were illustrated when Disney pulled its Sky channels to make way for the direct-to-consumer Disney+.
Sky shares closed at 17c yesterday, and shortly after this morning’s announcement were trading 3.6 per cent down at 16.2. The stock is down 65 per cent for the year. The failure of investors to show any love as Sky forecast a return to profitability, and various reform measures, was a constant source of frustration to Stewart. He told the Herald on October 13 that Sky shares were “materially undervalued”.
Stewart told the Herald that he had no plans to sell his Sky shares. He had told the board to “prepare for a series of letters from retail investor M. Stewart,” he joked.
How analysts see it
The new CEO won’t be drawn on Sky’s share price, saying only that she’s focused on meeting the pay-TV provider’s revised-upwards guidance.
Fat Prophets’ Greg Smith, as one of the few Sky bulls, recently told the Herald he saw potential for Sky shares to more than double to 38c (before what he called “the black swan event of Covid,” he saw the stock moving as high as the $2 mark with a year.
This morning, Smith said, “The announcement certainly came as a surprise, given that Sky is only mid-stream through a number of major initiatives under Martin Stewart.”
Smith said he also found Stewart’s reason for leaving curious, “Considering that we have multiple vaccines coming onto the horizon, and the potential for border restrictions to actually loosen during 2021.
“In any event, I think Martin has set Sky TV on a much better path in the relatively short time he has been at the helm. Sophie has worked alongside Martin for some time so I imagine the transition will be fairly smooth. For the market, it will probably be a case of ‘wait and see’.”
Jarden’s Arie Dekker said, “With Sky having repositioned it’s OTT [over-the-top or streaming] platforms but still struggling with core satellite subscriber decline it will be interesting to see how hard the new CEO drives the pending broadband play.
“Monetisation of an enlarged rugby union cost base is also critical.There is a decision on what to do with a new set-top box and Rugby Pass so there’s plenty still to do as Sky struggles to stem profit decline in a post-competition landscape.”
Dekker has a neutral rating and a 12-month price target of 18c.
I think getting broadband right is the priority. Getting into mobile has more barriers,” he told the Herald today.
Forsyth Barr’s Matt Henry said, “I don’t think you’ll see a huge change of strategy under Sophie. She was bought in by Martin and been a key person in his team.”
The analyst thinks Sky could well succeed in its aim of becoming NZ’s leading aggregator of entertainment content, and regaining its lock on A-list sport. But he fears that could be an economically thankless position in the age of streaming, with its high content costs and low margins.
Henry has a neutral rating and a target price of 16c.
Sophie Moloney's top 5 challenges
1. Direct-to-the-consumer streaming services.
First came the likes of Netflix, which offered a range of content. Now Hollywood movie and TV studios are starting to launch their own cut-out-the-middleman apps. Exhibit A is Disney+, which Disney launched worldwide last year, pulling its content from traditional players like Sky at the same time. Others will follow, such as HBO Max.
2. Direct-to-the-consumer sports streaming services
Pre-Covid, the English Premier League was planning to trial a global service that it billed as “the Netflix of football”, which it thought could potentially reach tens of millions of fans worldwide. That sort of model is already been deployed by various US sports bodies. The answer will be to keep a lock on local sport – though that could be complicated by 3.
3. Amazon, other giants starting to stir
Jarden is picking that Spark will eventually exit sport, just as it exited entertainment by selling Lightbox to Sky (Spark says it’s in it for the long-haul). But even if the wealth manager is right, global giants Amazon, Facebook and Google are starting to experiment with cherry-picking local sports rights in various countries. Sometimes their bids succeed, sometimes they don’t. They always drive up the price.
4. Declining revenue per customer
Sky added customers for the first time in years in FY2020 as the number of its streaming customers (who grew from 160,000 to 404,000) expanded faster than its satellite base (which fell from 619,000 to 585,000) contracted. But revenue still contracted and profit disappeared because the average stream spends $19.80 per month, while the average satellite customer forks over $82.08. Sky’s move into broadband could help it generate more per streaming customer.
5. Succeed in broadband
Sky Broadband – a UFB fibre service – is currently in trials ahead of a commercial launch next year. Sky plans to use cut-price internet to keep customers loyal to its content, and to upsell them to more channels (or streamed content). Partner Chorus will get a cut, but that’s the price of low capex upfront and ease of market entry. The company has said its broadband will stand out in a crowded market for its better quality of service – but that’s proved easier said than done for other contenders.
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