By Ashley Gardyne, Senior Portfolio Manager
06 March, 2017
As Game of Thrones fans eagerly await the release of the seventh season later this year, we are witnessing our own epic battle — Sky Television vs. Netflix.
More than two decades ago, Sky TV revolutionised TV by introducing satellite technology and offering us a huge range of content compared to TV1, TV2 and TV3. But fast broadband, combined with new 'Subscription Video on Demand' (SVoD) platforms like Netflix, threaten to swamp Sky TV.
This battle raises two pertinent questions for investors: How do we expect management teams to react to changing industry environments? And, how should we react as investors?
Because technology is disrupting an increasing number of traditional industries, it is right to expect management to continuously review their strategy in response to emerging threats. This means extra vigilance is required from investors also. Discussions with management regarding their intended responses are critical — along with close monitoring of delivery against these promises.
In the TV industry, the ownership of compelling content has become critical. Netflix and Amazon are increasingly creating their own Oscar-winning content, and production companies can stream shows directly to viewers for just $15 a month. These trends have been playing out for a number of years and in this context, Sky TV's response has been disappointing.
Sky TV's plan to latch onto Vodafone, as a potential lifeline, was clever, albeit defensive and last-ditch. The proposed merger would have allowed them to offer attractively priced mobile, broadband and TV packages and slow the pace of subscriber losses. The Commerce Commission's rejection of the merger took away this lifeline. While Sky TV may have a plan B, investors are left pondering what this might be. This reinforces the importance of investors (even long term investors like ourselves) responding quickly when industry dynamics deteriorate.
Note, we have owned Sky TV in the past but chose to exit our holding in our active funds in 2015.
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