ANNUAL REPORT 2 0 1 1 SKY NETWORK TELEVISION LIMITED CONTENTS 002 CONTENTS 003 HIGHLIGHTS 005 CHairman’S LETTER 007 CHIEF EXECutive’S REVIEW 011 BUSINESS OVERVIEW 017 FINANCIAL OVERVIEW 022 BOARD OF DIRECTORS 024 2011 FINANCIALS 034 NOTES TO THE FINANCIAL STATEMENTS 075 INDEPENDENT AUDITORS’ REPORT 076 OTHER INFORMATION 077 CORPORATE GOVERNANCE STATEMENT 080 INTERESTS’ regiSTER 083 COMPANY AND BONDHOLDER INFORMATION 087 WAIVERS AND INFORMATION 088 SHARE MARKET AND OTHER INFORMATION 089 DIRECTORY 090 SKY CHANNELS 2 HIGHLIGHTS TOTAL REVENUE TOTAL SUBSCRIBERS $797m 829,421 EBITDA ARPU UP 4.2% $322m $70.45 CAPITAL EXPENDITURE MY SKY SUBSCRIBERS $170m 279,875 NPAT CHURN $120m 14.0% 3 WE ARE NOT JUST A TELEVISION COMPANY We do not consider ourselves to be either a pay television or a satellite company, but rather a company that creates and aggregates content for consumers to watch, read and listen to in their living room, hotel room or even on a boat. Our subscribers may elect to watch the content on their big screens, computers or on 3G or 4G mobile phones. We deliver to you your happy place, when and where you want. 4 CHAIRMan’s letter This was another year where the SKY continues to strengthen and grow its economy provided plenty of challenges. programming with eight new channels added in However I am pleased to tell you that 2011; TVNZ kidzone24, MTV Classic, Nick Jr, RT SKY has performed exceptionally well. (Russia Today), Daystar, SKY Sport Mosaic and In the year to 30 June 2011 SKY increased France 24 (in both English and French language). subscriber numbers, held churn at almost Three new high definition channels were also the same level as the previous year launched; ESPN, SKY Sport 3 and SKY On and continued its strong growth in the Demand HD. number of MY SKY decoders. SKY continues to deliver excellent value to sport enthusiasts throughout New Zealand with eight Total revenue was $797 million, a 7.4% sport channels on offer. The live broadcast of increase compared to last year. This can in the Delhi Commonwealth Games; five dedicated part be attributed to the 3.4% increase in new sport channels on SKY plus 17 hours a day live subscribers. 27,024 new subscribers joined SKY, on Prime was one of the highlights from 2010. bringing total subscribers to a new high of 829,421. Newly acquired exclusive rights to International Silver Ferns Netball complements the Trans- The number of MY SKY subscribers has continued iSKY, SKY’s online TV Tasman Netball SKY already broadcasts. As well to increase, typically attracting customers who as netball being shown exclusively live on SKY, website was successfully watch more television. The total number of MY the new agreement allows Prime to provide a launched in January SKY subscribers was 279,875 at 30 June 2011, free-to-air viewing option for netball fans. We this year. A number of an increase of 47.3% from the previous year. look towards the Rugby World Cup where we are internet service providers Currently more than 35% of all SKY subscribers poised to showcase to the world our expertise in enjoy this personal video recorder technology. offer unmetering of sport production and to thrill sport subscribers the data used for iSKY, Operating costs were $475.3 million, a 4.6% with live broadcasts of all 48 games. delivering additional increase on the previous year. The increase Finally, my sincere thanks to Chief Executive value to SKY subscribers. can be primarily attributed to the depreciation Officer John Fellet; his leadership has helped of OSB assets, increased advertising costs the company to continue its great success story. I Total revenue (associated with greater advertising revenue) would also like to thank the senior management and an increase in subscriber management costs. team at SKY, all SKY employees, contractors and $797 million 7.4% increase compared to of course subscribers for their ongoing support iSKY, SKY’s online TV website was successfully last year. launched in January this year. A number of of the company. internet service providers offer unmetering of the data used for iSKY, delivering additional The total number of MY SKY value to SKY subscribers. With the government subscribers was project to deliver UFB (ultra-fast broadband) to 75% of New Zealanders and the ever growing Peter Macourt 279,875 at 30 June 2011. desire to consume content via devices other than Chairman the TV, iSKY will become a significant alternative to satellite for the delivery of content. 5 6 CHIEF EXECUTIVE’s reVIEW Dear Shareholders, subscribers who did not want to disconnect but had no access to their house and television. If you have been a shareholder of SKY Network Television for more than a Our Christchurch employees ably led by SKY’s year, you will see that in my annual Provincial Manager, Julian Walker and his team letter to shareholders, I attempt to have done an unbelievable job under impossible draft my correspondence as if all of conditions to serve and retain customers. We you were living overseas and that the started by putting subscribers who were affected only information you received about by the earthquake into a suspended account, SKY was derived from the information which allowed them to retain their decoder but we were able to electronically turn off the contained in this report. service. In most cases we would not have had the option to pick up the decoders anyway As always, the financial information contained in because no one was allowed access into the this Annual Report is quite detailed but still only home. At one stage we had 4,400 customers in John Fellet, Chief Executive Officer provides a financial snapshot of the business. suspended accounts as a result of the impact of In the ten annual letters I have drafted since the earthquake. becoming CEO I have attempted to explain the trends and to give some insight into the We have continued to work with these Two years ago SKY’s areas of business that the financials do not customers. At the end of the year the number revenues were up by 5% necessarily cover. of suspended accounts was down to 650 which is not bad for a households. I stress these are subscribers who SKY has a simple business model. We do not corporation that has think they will get back into their homes and will consider ourselves to be either a pay television been in New Zealand for activate their account. The year end subscriber or a satellite company, but rather a company more than 20 years. Last numbers include these non paying subscribers. that creates and aggregates content for year revenue growth was consumers to watch, read and listen to in their Out of the original 4,400 accounts, by the end up by 7.2%. In the year living room, hotel room or even on a boat. Our of the year, 900 subscribers had been lost. It is ending 30 June, 2011 I am subscribers may elect to watch the content on possible some of these customers have moved pleased to report our their big screens, computers or on 3G or 4G to a different part of the city or country and come revenue was up by 7.4%. mobile phones. They may want to watch it live, back to us. Our financials were impacted even when we schedule it, or time shift it to when more by the loss of Christchurch’s central business they want to see it. In the case of our magazines district. We have lost 220 commercial customers For the year ending 30 June 2011 (SKYWATCH and SKY Sport The Magazine) or including the largest hotel in the South Island. we added websites, they can read it any time. The content can be in the form of physical tapes, digital Top line growth continues to be a great story. 27,024 impressions, internet download, magazine print Two years ago SKY’s revenues were up by 5% subscribers which brought our or one of our 27,000 DVD titles from the library which is not bad for a corporation that has been total to 829,421. of our DVD online rental business Fatso. in New Zealand for more than 20 years. Last year revenue growth was up by 7.2%. In the year In my opinion the New Zealand economy ending 30 June, 2011 I am pleased to report our continues to improve. For the year ending revenue was up by 7.4%. 30 June 2011 we added 27,024 subscribers which brought our total to 829,421. This is an This increase is driven from three sources. First encouraging result. The year before our net gain of all we are gaining subscribers. Also, many of was only 23,495. The increase breaks a slide of the existing subscribers are taking on additional decreasing net gains that started with the global goods and services. This includes additional financial crisis. The gain would have been even service tiers such as Movies, Sports and Rialto. better if not for the series of earthquakes that In addition to its service offerings, SKY, over the have plagued Christchurch. After the first one last few years has become to some degree a hit in September 2010 we started hearing from hardware company. 7 CHIEF EXECUTIVE’s reVIEW In my 34 years of pay television experience I have Although the correct ratio of SKY subscribers never been involved in a product launch that has were recruited to be part of the viewing panel, We have now introduced been as successful as the MY SKY decoder.