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Sky in tech battle with Netflix and Amazon as its profits fall Sky in tech battle with Netflix and Amazon as its profits fall
(about 2 hours later)
Sky is to hire 300 new technology staff to keep pace with rivals such as Netflix and Amazon as the broadcaster suffered a drop in full year profits and an increase in the rate of customers defecting to rivals. Sky is to hire 300 new technology staff to keep pace with rivals such as Netflix and Amazon as the broadcaster suffered a drop in full-year profits and an increase in the rate of customers defecting to rivals.
The broadcaster, which is waiting to see whether a bid from Rupert Murdoch’s 21st Century Fox will be referred to competition authorities, reported a 14% fall in operating profits to £1.3bn at its UK and Ireland operation. The decline was mostly due to a one-time rise in the cost of its Premier League rights deal which hit £629m in the year to the end of June. The broadcaster, which is waiting to see whether a bid from Rupert Murdoch’s 21st Century Fox will be referred to competition authorities, reported a 14% fall in operating profits to £1.3bn at its UK and Ireland operation. The decline was mostly due to a one-time rise in the cost of its Premier League rights deal of £629m.
It said that in the UK and Ireland – its most important market, accounting for almost 90% of profits – it added 280,000 new customers in the last year, with 111,000 taking its TV services. It said that in the UK and Ireland – its most important market, accounting for almost 90% of profits – it added 280,000 new customers in the year to the end of June, with 111,000 taking its TV services.
However the rate that customers left Sky for rivals, a key metric watched by analysts and investors, rose from 11.2% to 11.5% over the year. The company said the rate had come down since March, but that it was too high.However the rate that customers left Sky for rivals, a key metric watched by analysts and investors, rose from 11.2% to 11.5% over the year. The company said the rate had come down since March, but that it was too high.
“It is a competitive world out there,” said the Sky chief executive, Jeremy Darroch. “There is more movement between platforms [rivals] than in the past. We need to keep focused and keep executing our plans. We have good plans in place.”“It is a competitive world out there,” said the Sky chief executive, Jeremy Darroch. “There is more movement between platforms [rivals] than in the past. We need to keep focused and keep executing our plans. We have good plans in place.”
These plans include the creation of the 300 new technology roles, which will increase its software engineering workforce by 25%, for its Sky Labs operations in Milan, Leeds and London.These plans include the creation of the 300 new technology roles, which will increase its software engineering workforce by 25%, for its Sky Labs operations in Milan, Leeds and London.
The company said the staff will be tasked with driving the development of its streaming services, which are set to expand with a new service in Spain and later this year a broadband-delivered TV service for those who cannot, or will not, have a satellite dish.The company said the staff will be tasked with driving the development of its streaming services, which are set to expand with a new service in Spain and later this year a broadband-delivered TV service for those who cannot, or will not, have a satellite dish.
Earlier this week Amazon, which runs the Prime TV service, announced it is doubling the number of research and development staff it employs in London. Earlier this month Netflix, which has grown rapidly to an estimated 6.4 million UK subscribers, passed the 100 million customer mark globally.Earlier this week Amazon, which runs the Prime TV service, announced it is doubling the number of research and development staff it employs in London. Earlier this month Netflix, which has grown rapidly to an estimated 6.4 million UK subscribers, passed the 100 million customer mark globally.
Darroch said that services like Netflix, which Sky does not allow customers to access via its set-top box, were not a direct threat to his business.Darroch said that services like Netflix, which Sky does not allow customers to access via its set-top box, were not a direct threat to his business.
“We try hard to be friendly with everybody,” he said. “If you look at the relationships we have more broadly, pretty much every major company we have some form of relationship with. Sometimes it takes a while to commercially bring that to life and get the right kind of common ground. A lot of our customers take Netflix alongside their bundle, not at the expense of Sky but alongside Sky.” “We try hard to be friendly with everybody,” he said. “A lot of our customers take Netflix alongside their bundle, not at the expense of Sky but alongside Sky.”
Sky is also beefing up its budget for original programmes by 25%, thought to be as much as £150m annually, as it looks to continue to reduce its reliance on sport and remain competitive with deep-pocketed rivals such as Netflix.
Darroch said that the company has “walked away” from bidding for some sports rights recently as there was better value in spending the cash elsewhere in the business.
“Premier League remains fantastic, it is important but it is increasingly only one part of the mix,” he said. “It gives us more options [spending beyond sport]. We are starting to see viewing numbers on some of these productions [like Riviera] that are big, and the difference they have relative to sport is they repeat for a long time. The tail of value is greater.”
Darroch said that with the new investment, which brings Sky’s total budget for original shows to potentially as much as £750m a year, it now has an “always on” strategy that will see four original dramas launch each quarter for each of its territories.
Sky also announced the first fruit of a $250m (£190m) co-production deal with HBO, the US network behind hits such as Mad Men and Sopranos, a mini-series called Chernobyl based on the 1986 nuclear plant disaster.
The company’s total operating profits fell by 6% to £1.47bn for the year, which it said was an “excellent” result given the additional Premier League cost and £51m spent to date getting its Sky Mobile service up and running.
Darroch said that the protracted process surrounding Rupert Murdoch’s bid to take full control of Sky, which has so far cost it £16m in advisory fees, was not affecting the day-to-day running of the business.