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Sky Network (ASX:SKT) Shares Rocket Higher On Broadcast Deal

Shares in SKY Network Television Limited (ASX: SKT) have opened 15% higher this morning following news it has secured Rugby Union broadcasting rights until 2025.

Sky Network Television is a New Zealand-based public company, deriving revenue from the provision of free-to-air television, pay television and multi-channel services.

Done Deal

Under the deal, Sky will continue to broadcast Rugby on both its paid subscription premium sports channels as well as its free-to-air New Zealand channel, Prime.

As part of the deal, New Zealand Rugby (NZR) will pick up a 5% stake in the broadcaster which will involve the issuance of 21.8 million shares at the start of November.

However, the announcement this morning was a little light on for details, not disclosing the amount paid by Sky nor the effective share price NZR will pay for its stake in the company.

The deal will likely be of great relief for the network which lost its long standing broadcasting rights to New Zealand cricket just last week. The network had held rights over the cricket for 24 consecutive years until it was awarded to Spark Sport from April 2020 for a period of 6 years.

On A Sinking Ship?

Today’s news has helped to reverse the damage that was done to the Sky share price last week. However, shares in the network are still down more than 50% in the past 12 months as the company battles against overseas streaming services.

Subscription revenue from its pay TV services fell last year along with total subscribers and I think this is likely to become a trend that will continue. Based on the falling share price, investors seem to agree.

Management took decisive action earlier this year by scrapping the dividend which accelerated the dumping of shares. However, I believe it was a prudent measure to take given the current performance of the business.

Sky may not be a sinking ship, but it’s at least a leaky boat. The subscription TV model has serious challenges going forward, so it’s likely that broadcasters such as Sky will have to reinvent themselves in order to remain relevant in this new age of on-demand streaming services.

Sky isn’t the only broadcaster feeling the heat, with shares in Seven West Media (ASX: SWM) down more than 70% over the past 5 years.

Value Or Value Trap?

Still trading at just below $1 after today’s news, there may be some who believe this new deal might provide the impetus for a sustained reversal in the downward trending share price.

I am less optimistic as I think TV networks are facing an uphill battle in the new media world and are likely to continue to have market share taken away from them.

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At the time of publishing, Luke has no financial interest in any companies mentioned.

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