Sky Network Television to Remain a Dominant Force in Pay TV but Margins Set to Drift Lower

A recent investor day reinforced our view that Sky Network Television, or Sky TV, can evolve in a changing environment of content distribution. However, greater competition from subscription video on demand, or SVOD, players and Sky TV's competitive response through increased content offering are likely to lift programming costs over time. Sky TV guided for programming costs to rise to 35% of sales in fiscal 2016, from about 31% to 32% historically, and could potentially escalate to about 39% of sales in the longer term. Consequently, though Sky TV will continue to remain immensely profitable, we believe the outlook is negative for its earnings before interest, tax, depreciation and amortisation margin.