9 Dec 2011

Pay TV partnership perfectly timed - analyst

7:25 am on 9 December 2011

An analyst says the new pay TV partnership between Sky TV and TVNZ is perfectly timed, low risk and will grow both companies' business.

Igloo will kick off next June as a prepaid, self-installed pay TV with 11 channels, freeview and pay per view offerings.

Sky will have a 51% share and TVNZ 49%.

Igloo will cost $25 a month and the price of the decoder will be less than $200.

Forsyth Barr analyst Rob Mercer says Igloo is long overdue, offering an affordable product to households that don't want to be contracted to a monthly premium pay TV subscription.

He says most markets in the world have a lower end pay TV option that brings in the flexibility and affordability needed to extend the market.

Mr Mercer says analogue is being switched off next year so digital TV is going to be the way of the future.

He says New Zealand pay TV has 50% penetration, so there's a gap in the market to provide a package at the lower end which provides a broader content offering and uses the strength of both TVNZ and Sky TV's content.

Igloo has a starting capital base of $25 million and is projected to have 50,000 customers in the 2013 financial year. It is expected to report a $3 million loss in its first year.

Mr Mercer says the owners should quickly cover the initial loss as the number of subscribers increases.

He says the business will have some quite high fixed costs such as overheads, contracts with content producers and transmission costs, which is why it will make a loss in the first year.

Mr Mercer says over time those fixed costs will be spread across higher revenue as the number of subscribers increases from around 50,000 to up to 200,000.