SKY NETWORK TELEVISION LIMITED Highlights 1 Notes to the Financial Statements 36 , , Chairman s Letter 2 Auditors Report 66 , Chief Executive Officer s Letter 4 Corporate Governance Statement 68 Business Overview 10 InterestS Register 72 Financial overview 17 Shareholder and Bondholder Information 74 Board of Directors 22 Directory 80 Financial information 26 SKY channels IBC COVER IMAGE: PIRATES OF THE CARIBBEAN: DEAD MAN’S CHEST, SHOWN ON SKY BOX OFFICE ON 25 APRIL 2007 1 2 PETER MACOURT 3 4 IF YOU HAVE BEEN A SHAREHOLDER OF SKY NETWORK TELEVISION LIMITED FOR MORE THAN A YEAR YOU WILL NOTE IN MY ANNUAL LETTER THAT I ATTEMPT TO DRAFT MY CORRESPONDENCE AS IF ALL SHAREHOLDERS ARE LIVING OVERSEAS AND THAT THE ONLY INFORMATION THEY KNOW ABOUT THEIR INVESTMENT IS FROM THE INFORMATION CONTAINED IN THE ANNUAL REPORT. BUSINESS CHANGES 5 REVENUE 12.7% INCREASE NET INCOME 29% INCREASE 6 7 As a CEO I consider my primary role is to “ allocate funds in a way that maximises shareholder value. ” 8 9 John Fellet 10 10 TV” at 30 June 2007. subscribers2007 and there “SKY to were 10,190 Mobile February in launched service The was phones. mobile a content supply agreement with Vodafone for its 3G In addition these to subscribers, SKY has entered into and SKY DMX Music. subscribers which include subscribers DVD Unlimited to cable network.Telstra’s There were “other” 5,285 subscribers on the DBS satellite platform and UHF network compared at 30 June 651,580 to 2007, previous This year. leaves 54,346 subscribers on the UHF the to satellite network, in the compared 9,274 to During the year 8,040 subscribers migrated from the the comparative period. This net subscribers compares the to 48,102 added in adding subscribers, anet 43,941 an increase of6.6%. base in the year 30 to June atotal 2007 to of711,211, SKY has continued increase to its total subscriber SUBSCRIBERS BUSINESS OVERVIEW 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000800, 00,000 0,000 000 0 0 Jun 9191 UHF JJunun 9922 JJunun 9933 SATELLITE S ATEL JJunun 9944 LITE Jun 9955 SUBSCRIBERS JJunun 96 WHOLESALEWH JJunun 9977 O LE JJunun 98 S ALE JJunun 9999 JJunun 00 MY SKYM Y Jun 0011 S KY JJunun 0022 JJunun 0033 JJunun 0044 JJunun 0055 JJunun 06 for in the the year previous from 13.5% year. be successful in reducing gross churn, falling 13.4% to SKY to continues illustrates, graph following the As percentages months. over 12 subscribers for that month and total these monthly average the of percentage a as disconnected each month wecalculate the subscribers who have on arolling gross annual basis, which means that afailureto pay to their account. SKY calculates churn due or voluntarily service either their disconnect who Churn is ameasure ofthe percentage ofsubscribers CHURN 2007. June 30 there were subscribers 8,642 this to magazine at The magazine was launched in January 2007 and Magazines publish to amonthly SKY Sport Magazine. SKY also entered into ajoint venture with Fairfax 10% 20% 30% 40%4 0% 0 0% % JunJun 98 Dec 98 JJunun 9999 CHURN GROSS ANNUAL ROLLING Dec 99 JJunun 0000 Dec 00 JJunun 01 Dec 0011 JJunun 02 Dec 0022 JJunun 0033 Dec 03 JJunun 04 Dec 0044 JJunun 0055 Dec 05 JJunun 06 Dec 06 JJunun 0077 Satellite churn continues to be lower than UHF churn, as illustrated in the graph: AVERAGE HOURS VIEWING SKY DIGITAL PER MONTH, PER SUBSCRIPTION SKYSKY CHANNELSCHANNELS TOTALTOT 250 9 5 CHURN SPLIT 3 220 219 215 213 4% UHF 0707 SATELLITESATELLITE 07 200 176 3% 150 126 123 116 116 100 94 2% 50 1% R HOUR R 0 VIEWER HOURS VIEWER VIEWE 0%0% 2002/032002/03 2003/0420033/04 2004/052004/05/0 2005/062005/06 2006/072006/07 l t r y v n n g c o u u ep Jul Ju Ap Apr Oct Jan O Ja J Jun Feb Feb Mar Mar Aug Sep Nov Dec A S N Dec Ma May During 2007 SKY launched four new channels on its satellite platform: VIEWING On 19 August 2006, SKY launched “MTV”, a SKY’s share of television viewing in New Zealand 24 hour network with localised and signature “MTV” homes increased from 22.5% in 2006 to 25.1% in 2007. programming. The channel focuses heavily on This share of viewing was achieved from the 44.5% of New Zealand artists and delivers shows that “MTV” households that have access to SKY. The trend in SKY’s viewers love alongside presenters who fully engage viewing share over recent years is illustrated in the with the unique and vibrant entertainment scene in following graph: New Zealand. In November 2006, SKY launched the “Documentary SKY TV Channel” which features a unique and contemporary 11 % Share of viewing in all NZ Homes focus on people and popular culture via the screening 35 ALLALL SKYSKY TVTV 12 MONTHSMONTHS MOVINGMOVING ANNUALANNUAL of broadly-themed, critically-acclaimed and award- 30 winning works from celebrated documentary makers. 25 Documentaries are enjoying a new popularity. The 20 truth really can be stranger than fiction and many 15 outstanding film-makers are using the power of the 10 documentary format to examine some of the most 5 topical and challenging themes in our lives. 0 1 2 4 7 3 5 6 8 9 0 3 4 6 7 On 1 December 2006, SKY launched “FOX News 9 01 07 02 05 93 95 96 98 99 00 03 04 06 9 9 9 n n n n un un un Channel”. FOX News is the highest rated news J J J Ju Ju Jun 02 Jun 05 Jun 07 Ju Ju Jun Jun 91 Jun 92 Jun 93 Jun Jun 94 Jun 95 Jun Jun 96 Jun Jun 97 Jun 98 Jun Jun 99 Jun Jun 00 Jun Jun 01 Jun 03 Jun Jun 04 Jun Jun 06 Jun channel in the United States and the fastest growing news channel in the world. The channel offers New Zealand viewers live news from the United States and SKY subscribers have increased the amount of time they around the world 24 hours a day. spend watching SKY each month from 123 hours last year to 126 hours in 2007. A comparison of the average monthly hours spent watching SKY as a total amount of time spent watching television over the last five years is illustrated in the following graph. A decline in the viewing on SKY’s Movie channels has been offset by increases in viewing on SKY’s start up channels, particularly the two Disney channels, Food TV and the new MTV, Documentary and FOX News channels. STAR PLUS was launched on 1 January 2007. STAR service. The continued decline in the churn rate PLUS, the flagship channel of the STAR network in suggests that SKY continues to offer its subscribers India, is the undisputed king of Hindi general value for money. entertainment in India. Launched as a fully fledged The monthly retail prices (incl GST) of SKY’s most Hindi channel in 2000, today over 65 million viewers popular packages at 30 June were as follows: tune-in to STAR PLUS every week and spend almost twice the time on STAR PLUS than on any competing channel. In the last six years STAR PLUS has Packages per month 2007 2006 consistently been India’s No 1 channel, garnering UHF Super Value $33.97 $32.97 an average of 42 out of the top 50 shows across Start up $45.28 $44.16 all channels in the Hindi speaking markets. Start up + Movies $65.08 $62.78 SKY continues to offer pay-per-view (“PPV”) Start up + Sports $61.55 $59.30 programming on its satellite platform, with the number Start up + Sports & Movies $79.30 $75.93 of scheduled PPV channels increasing from 7 to 14 in October 2006. Buy rates, which measure the percentage Subscribers can alter the packages that they subscribe of subscribers who purchase a title each month have to at any time, so there is always movement in the remained flat at 28%. A total of 1,972,927 PPV buys number of subscribers subscribing to different services. were purchased in 2007 compared to 1,742,981 buys The following table summarises the percentage of purchased in 2006. subscribers to each of SKY’s core services at 30 June: 2,400,0002,400,000 PPV BUYS Subs by Tier 2007 2006 28% 2,000,002,000,0000 28% 28 % 8% UHF: % 28% % 27% 1,600,000 32% Sport + Movies 52% 54% 31% 36% 1,200,000 Sport only 47% 44% 12 Other 1% 2% 800,000 35% Satellite: 400,000 Start up + Movies + Sport 43% 47% TOTAL TITLES per annum TOTAL Start up + Sport 33% 33% 0 1 2 3 4 6 Start up + Movies 11% 8% 0 0 0 05 0 07 /0 / / / / / / Other 13% 12% 2000/01 2000 2001/02 2001 2002/03 2002 2003/04 2003 2004/05 2004 2005/06 2005 2006/07 2006 There continues to be a decline in the percentage A new “on-demand” movie service was launched to MY of subscribers to SKY’s premium package of “Start SKY subscribers in July 2007. This service is based on up+Movies+Sport” from 47% to 43%, with offsetting SKY downloading movies to the MY SKY hard-drive via increases in the “Start up+Movies” penetration from 8% satellite, with up to 20 movies being available to watch to 11% and “Other”, which is primarily Start up only “on demand”.