New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Spark / Sky TV</h2>
Game on – NZ Cricket switches to Spark Sport
Yesterday Spark (SPK), in conjunction with TVNZ, announced it secured the rights to NZ Cricket for six years from April 2020.&nbsp;These rights include NZ-located matches for NZ men’s and women’s teams, as well as the domestic T20 competition and the Ford Trophy (one-day) final. They do not include international tours where the rights are owned by the host country.
Our&nbsp;(belated, apologies)&nbsp;takeaways/thoughts are:
<ul>
<li>Spark Sport is not going quietly into the night: A bull case on Sky TV (SKT) was that SPK and SKT reached an amicable agreement in which SPK wholesaled Sky Sport and did not compete for top tier sporting content. SPK’s challenges in delivering the Rugby World Cup likely strengthened this view. SPK’s contract with NZ Cricket until 2026 highlights it remains committed to Spark Sport.&nbsp;Going forward, securing sports rights will be genuinely competitive processes. In the past they were not.</li>
<li>Spark Sport is still a modest investment for SPK: We (1) believe NZ Cricket’s contract with SKT is worth c.NZ$10m pa (net of production costs), (2) have heard speculation this has lifted to c.NZ$15-20m under the new contract, and (3) estimate Spark Sport may make a pre-tax loss of c.NZ$10-15m this year including the cost of the Rugby World Cup (this is speculative; SPK has provided no detail on revenue, subscribers, or cost). Additionally, SPK will seek to use Spark Sport as an acquisition and retention tool across its broader product suite. This investment remains immaterial at 2-3% of our SPK FY20E NZ$587m pre-tax profit.</li>
<li>Spark Sport will improve: SPK’s challenges delivering the Rugby World Cup have been well documented. We expect the service will only improve with experience (both SPK’s and users’), consumers’ increasing comfort with streaming (c.57% of NZ households now subscribe to Netflix, and NZ has the second highest smart TV penetration in the world only behind South Korea), and the rollout of the ultra-fast broadband (UFB) fibre-to-the-home (FTTH) network and other broadband initiatives (by 2022 87% of NZers will be able to access FTTH, and other government initiatives aim for 99% of NZers able to access peak download speeds of &gt;50Mbps by 2025).</li>
<li>Cricket is a significant loss for SKT: Cricket is the marque summer sporting content in NZ, and leaves a considerable hole in SKT’s sporting calendar. It reduces the value of SKT’s product to customers and provides a reason for churn, bundle trimming, or switching to the lower priced Sky Sport Now streaming service (where switching the service on and off is even easier). We expect the loss will only add to the considerable pressures on SKT’s subscriber numbers and ARPU (average revenue per user).</li>
<li>Showcasing to a broad&nbsp;audience is important for sporting bodies:&nbsp;In a world awash with media content competing for audiences’ time, most traditional sports are grappling with declining participation and fan engagement. Cricket is facing those challenges. Whilst we understand it is still the second most watched sport in NZ, participation in secondary schools has nearly halved since 2000. Being locked behind paywall is far from the only issue, but it is not helpful in promoting sports to the widest possible audience.</li>
</ul>
We believe televising some games on TVNZ, NZ’s dominant free-to-air platform, will strongly appeal to NZ Cricket. The most watched cricket match in NZ over the past decade, attracting &gt;1m viewers, was the T20 “Black Clash” screened on TVNZ between current and former rugby and cricket players, out-rating the last two ODI World Cups screened on SKT where NZ reached the final on both occasions. Whilst Sky TV does have its own free-to-air platform in Prime,&nbsp;not all free-to-air platforms are created equal. TVNZ’s substantially higher viewership naturally attracts a greater audience for any event it screens. &nbsp;
<ul>
<li>Rugby is likely beyond SPK’s reach (for now):&nbsp;The three most important media sports rights in NZ are NZ cricket, NZ/SAANZAR rugby, and the NRL rugby league. The current SAANZAR contract expires at the end of 2020, and we understand NZ Rugby is looking to contract its next broadcasting deal before the end of this year. The current NRL contract with SKT extends until the end of 2021. We believe the cost of these current contracts are c.NZ$65-70m and c.NZ$30m pa respectively (net of production costs).</li>
</ul>
We do not think it is overly dramatic to say securing the SAANZAR contract is a matter of survival for SKT. Media has reported that it has already offered NZ Rugby NZ$80m pa for five years from 2021. We believe it is unlikely SPK would be willing to commit to this level of expenditure given the revenue uncertainty. One possible solution (dependent on NZ Rugby’s risk appetite) could be a lower fixed cost commitment with NZ Rugby taking revenue risk. Medium-term, we expect SPK will look to expand its winter content – bidding for NRL rights could be intense.
<ul>
<li>Extreme uncertainty for SKT: The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and content costs. This uncertainty has only now become even more extreme.&nbsp; &nbsp;&nbsp;</li>
</ul>
Matt Henry&nbsp;&nbsp;CFA
Head of Wealth Management Research&nbsp;
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+64 9 368 0115
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0800 367 227
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+64 9 368 0092
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PO Box 97, Auckland 1140
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<a href="http://www.forsythbarr.co.nz/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://www.forsythbarr.co.nz&amp;source=gmail&amp;ust=1570839848859000&amp;usg=AFQjCNFnYq3qEkDjx2zMpAeizvLrbZolNQ" rel="noopener">www.forsythbarr.co.nz</a>
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<td style="width: 173.6px;">Twitter:</td>
<td style="width: 510.4px;">
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Spark / Sky TV
Game on – NZ Cricket switches to Spark Sport
Yesterday Spark (SPK), in conjunction with TVNZ, announced it secured the rights to NZ Cricket for six years from April 2020.&nbsp;These rights include NZ-located matches for NZ men’s and women’s teams, as well as the domestic T20 competition and the Ford Trophy (one-day) final. They do not include international tours where the rights are owned by the host country.
Our&nbsp;(belated, apologies)&nbsp;takeaways/thoughts are:

Spark Sport is not going quietly into the night: A bull case on Sky TV (SKT) was that SPK and SKT reached an amicable agreement in which SPK wholesaled Sky Sport and did not compete for top tier sporting content. SPK’s challenges in delivering the Rugby World Cup likely strengthened this view. SPK’s contract with NZ Cricket until 2026 highlights it remains committed to Spark Sport.&nbsp;Going forward, securing sports rights will be genuinely competitive processes. In the past they were not.
Spark Sport is still a modest investment for SPK: We (1) believe NZ Cricket’s contract with SKT is worth c.NZ$10m pa (net of production costs), (2) have heard speculation this has lifted to c.NZ$15-20m under the new contract, and (3) estimate Spark Sport may make a pre-tax loss of c.NZ$10-15m this year including the cost of the Rugby World Cup (this is speculative; SPK has provided no detail on revenue, subscribers, or cost). Additionally, SPK will seek to use Spark Sport as an acquisition and retention tool across its broader product suite. This investment remains immaterial at 2-3% of our SPK FY20E NZ$587m pre-tax profit.
Spark Sport will improve: SPK’s challenges delivering the Rugby World Cup have been well documented. We expect the service will only improve with experience (both SPK’s and users’), consumers’ increasing comfort with streaming (c.57% of NZ households now subscribe to Netflix, and NZ has the second highest smart TV penetration in the world only behind South Korea), and the rollout of the ultra-fast broadband (UFB) fibre-to-the-home (FTTH) network and other broadband initiatives (by 2022 87% of NZers will be able to access FTTH, and other government initiatives aim for 99% of NZers able to access peak download speeds of &gt;50Mbps by 2025).
Cricket is a significant loss for SKT: Cricket is the marque summer sporting content in NZ, and leaves a considerable hole in SKT’s sporting calendar. It reduces the value of SKT’s product to customers and provides a reason for churn, bundle trimming, or switching to the lower priced Sky Sport Now streaming service (where switching the service on and off is even easier). We expect the loss will only add to the considerable pressures on SKT’s subscriber numbers and ARPU (average revenue per user).
Showcasing to a broad&nbsp;audience is important for sporting bodies:&nbsp;In a world awash with media content competing for audiences’ time, most traditional sports are grappling with declining participation and fan engagement. Cricket is facing those challenges. Whilst we understand it is still the second most watched sport in NZ, participation in secondary schools has nearly halved since 2000. Being locked behind paywall is far from the only issue, but it is not helpful in promoting sports to the widest possible audience.

We believe televising some games on TVNZ, NZ’s dominant free-to-air platform, will strongly appeal to NZ Cricket. The most watched cricket match in NZ over the past decade, attracting &gt;1m viewers, was the T20 “Black Clash” screened on TVNZ between current and former rugby and cricket players, out-rating the last two ODI World Cups screened on SKT where NZ reached the final on both occasions. Whilst Sky TV does have its own free-to-air platform in Prime,&nbsp;not all free-to-air platforms are created equal. TVNZ’s substantially higher viewership naturally attracts a greater audience for any event it screens. &nbsp;

Rugby is likely beyond SPK’s reach (for now):&nbsp;The three most important media sports rights in NZ are NZ cricket, NZ/SAANZAR rugby, and the NRL rugby league. The current SAANZAR contract expires at the end of 2020, and we understand NZ Rugby is looking to contract its next broadcasting deal before the end of this year. The current NRL contract with SKT extends until the end of 2021. We believe the cost of these current contracts are c.NZ$65-70m and c.NZ$30m pa respectively (net of production costs).

We do not think it is overly dramatic to say securing the SAANZAR contract is a matter of survival for SKT. Media has reported that it has already offered NZ Rugby NZ$80m pa for five years from 2021. We believe it is unlikely SPK would be willing to commit to this level of expenditure given the revenue uncertainty. One possible solution (dependent on NZ Rugby’s risk appetite) could be a lower fixed cost commitment with NZ Rugby taking revenue risk. Medium-term, we expect SPK will look to expand its winter content – bidding for NRL rights could be intense.

Extreme uncertainty for SKT: The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and content costs. This uncertainty has only now become even more extreme.&nbsp; &nbsp;&nbsp;

Matt Henry&nbsp;&nbsp;CFA
Head of Wealth Management Research&nbsp;




T:&nbsp;


+64 9 368 0115




TF:&nbsp;


0800 367 227




F:&nbsp;


+64 9 368 0092




P:&nbsp;


PO Box 97, Auckland 1140




&nbsp;


&nbsp;




W:&nbsp;


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Spark / Sky TV Game on – NZ Cricket Switches to Spark Sport

New Zealand

Spark New Zealand Limited (formerly Telecom Corporation of New Zealand Limited) provides digital communications, entertainment and IT services over its networks and the Cloud to New Zealanders and businesses. The Company's strategy is focused on mobility, data and effortless service, and cost.

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Spark New Zealand (SPK NZ)

Spark / Sky TV Game on – NZ Cricket Switches to Spark Sport

Spark / Sky TV Game on – NZ Cricket switches to Spark Sport Yesterday Spark (SPK), in conjunction with TVNZ, announced it secured the rights to NZ...

Forsyth Barr

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