Kia
ora and hello to all of our investors, partners, analysts, media and crew. My name is Sophie Maloney, and I'm your Chief Executive here at Sky. And it's my absolute pleasure to welcome you to our Investor Day. I'm excited to be joined by some key members of our senior leadership team to help tell Sky's strategic story. I'm also very happy that our Chair, Philip Zohman, will be in attendance today and will join me in the hot seat later on to answer any questions you may have.
Now the game plan is as follows. I'm going to kick off by addressing our overall story, and I'll then introduce each of the sections and preventative. We're going to pause a number of times for Q and A as we go. My goal today is to give you confidence in the strategic direction I talked to during our interim results and our ability to deliver on it. Yes, our sector in our business has had a challenging time, and the consolidation of major studios will continue to impact the availability of entertainment rights in our market.
And we have faced right cost inflation in both sports and entertainment for the last 24 months. The question to ask is, can Sky navigate a path through a profitable, sustainable outlook given these challenges? And our answer is a resolute yes. There is an undeniable advantage in our satellite delivery and our ability to reach New Zealanders in every corner of our country. And for our partners to reach those customers willing to pay higher ARPU due to the power of the Sky bundle.
Now we couple that reliable satellite delivery with really good streaming services with those Kiwis who prefer to watch content that way. And we also have our eye firmly on the next generation of customers, as I'll speak to you shortly in respect to Sky's new fan experience. As we take you through our strategy and priority areas this morning, please do take notice of some important features. Everything we do is based on customer data and deep insights into what they want. We partner where it makes sense.
There is no fortress sky mentality. We are making co exclusive deals work for our customers and our bottom line. We are investing for growth, and there is a clear and resolute focus on execution. Now in the last short while, we have inked co exclusive deals with Discovery and ESPN based on our insights. And we are hugely excited about the new broadcast and digital partnership with the NRL and NZRL out until the end of 2027, confirming that we are the partner of choice in this market.
From a technology perspective, we have transitioned much of our broadcast infrastructure to the cloud, and we have a digital platform ready for deployment to our new Skybox. Our successful merger of Lightbox and Neon also serves as proof of our ability to execute on a tech and customer facing need, as does the successful launch of Sky Broadband. Looking ahead, our measures of success include critical deliverables like our new Skybox. We are also going to grow our revenues, as set out on the slide, coupled with a focus on cost reduction and maintaining positive free cash flow. Now I trust that today's presentation gives you some valuable insight, both of the strategy and the strength of the Sky team delivering on it.
So through that strategy on a page and what matters most. Well, it's simple. It's our customers. And the fact we connect New Zealanders with the sports and entertainment they love in ways that work for them right across Aotearoa, New Zealand. We have 4 core focus areas at Sky.
Number 1, nurturing and growing our Skybox and streaming customers number 2, being the preferred partner to rights holders, content creators and distributors number 3, growing our revenues and reducing our operating costs and number 4, being a place where our crew are empowered to do their best work. Through the course of today's presentation, we'll dive more deeply into how we're delivering on those 4 core priorities. The senior leaders you'll hear from today have specialist expertise and direct accountability in their areas, and I'm pleased to be able to introduce each of them to you. I've asked a number of the presenters to include the ways you can measure our success over the next 3 years in their presentations. And I'll then look to bring those targets together at the end of the presentation today, and I trust you'll see a clear focus on the results for each one of us.
So to our presenting crew, we'll be hearing from Maria, our Content Strategy Lead, who has kindly stepped in due to Emily Blumenthal, our Head of Customer Experience Strategy and Insights, going on early parental leave. Maria will walk through walk you through the opportunities we're seeing and how data and insights are guiding our approach in each of our key customer segments. This work includes a deep understanding of New Zealand from a changing demographic perspective and what that means for us at Sky across a number of initiatives. But at our core, we're a content company. Jonny Arrington, our Chief Commercial Officer, will discuss our content and our approach to partnerships and how our data is informing all that we do.
Ricky, our Head of Entertainment Streaming, will share the latest excellent progress on Neon and Skyport now. I'm really excited about what Ricky has to show you with Neon, especially given the operating mode of this tight knit team. Corey, our Head of Sales and Operations, will then share the continued stabilization story for current Skybox business for our current Skybox business and how we're looking to add value in the short term. This includes the launch of NewSky Go and, of course, the launch of Sky Broadband, which Dan, our Head of Broadband, will walk us through. I'll then be back to share a market leading innovation that will support our customers securing the best Sky Broadband in their home and can also support a brand new Sky fan experience as we look to engage a wholly digital fan set back to the live game.
All of this is centered on our new cloud based and partner first approach to technology. I will then invite Bridget, our Head of Products, to share the much awaited Skybox team. Having pushed the team to scan the globe for the best solution to meet our Skybox customer needs, I'm really excited to share this update with you today. The final and crucial part of our presentation today is what we call the bedrock. First up is our focus on rapid and sustained execution, which includes enabling our people to do their very best work and number 2, being an efficient, adaptive, nimble and profitable business.
On the first of these, I'll invite Michael, our Chief People and Operations Officer, to give you an insight into work we've been undertaking from a culture and operating model perspective. I'll then invite our Interim Chief Financial Officer, Andrew, to take us through the financials and the key metrics that guide our work. Before I hand over to Maria, I would like to take a brief step back. When we launched when Sky launched 31 years ago, we bought choice to Kiwis with 3 channels, including live sport. In 2006, when we launched our My Sky box with a recording function, we brought ease to all Kiwi homes.
You could pause live TV, and you never had to rush home for the news again. It was amazing. With our new Skybox, we had the opportunity to reclaim that ground of bringing amazing choice as the ultimate aggregator and incredible ease in the inclusion of free TV, Sky TV and the various direct to consumer apps all in one place. Now I often say that my own kitchen table is a dangerous place from which to view the world. So I'm conscious that while my digital native children are happily consuming content via an iPad or a PlayStation, for many New Zealanders, the single TV screen remains a vital part of their viewing habits.
Maria's task today is to remind us all to step beyond our own reality and to understand what the data tells us about the bulk of New Zealand homes. And on that note, I'll hand over to Maria. Good morning. My name is Maria Balak Cooper, and I appreciate this opportunity to talk to you about Sky's customers. I'll be sharing with you some of the important customer research that our Sky customer experience insights team and key stakeholders like myself have been working on.
These insights are helping to shape our Sky strategy and road map. Today, I'll be covering 3 key areas. Firstly, let's get straight into it and talk about the opportunity. I'll be sharing some clear direction our new data and insights are revealing, including growth through more customer centric decision making. Then I'll reveal a little about each of these new toolkits and what they are telling us about existing and potential customers.
And lastly, we will cover how these insights are shaping customer life stage, segment based opportunities. So now let's take a look at what our data and insights are telling us about where Sky's growth opportunities are. Pre COVID, so back in February 2020, Sky conducted a New Zealand market sizing study on our industry with a global consultancy firm called LEK. Let me talk you through these results. If we start with the total New Zealand population, we can see that our existing Skybox customer base makes up onethree of New Zealand households.
Of the 1,200,000 who don't have Sky currently, 1,000,000 are open to paying for content. And of those, 600,000 households are open to Sky paid content, which really is a significant number. That's another onethree of all New Zealand households. There are another 400,000 households that may not be open to our Sky box, but absolutely could be open to our premium streaming products, Neon and Sky Sport now. So back to that 600,000 number, and you may ask, if they're open to it, why doesn't Sky have these customers then?
And look, we're alive for the fact that Sky's offering needs to evolve to meet the needs of a broader group of New Zealand, which I'll get into shortly. One of the keys to unlocking that opportunity and growing new audiences will be shifting our value equation. Looking into pricing and packaging, value add services, for example, as well as platform innovation, and ensuring we are delivering our world class content to these customers in ways that work for them. Let's take a step back at the bigger picture for where our population trends were going. A decade ago, it was the 35 to 59 age groups, these being older families and couples, post kids at home, who really had the biggest population numbers and also the biggest spending power.
Over 65 were a relatively small group. But if we project out to 2,030, we can see that the aging population really starts to kick in. It's a much more even age distribution of New Zealand. So this means we need to take quite a segmented approach to growing and maintaining our customer base. It's going to be really important to continue to serve our older customer base well, but also focus on growing families as well as recruiting those younger audiences.
So reflecting on those population shifts, we can see that today we are in fairly good speed with those older, slightly more male audiences, and this has absolutely been driven by our strength in sports and the reliability and ease of satellite. While there's still plenty of opportunity in this space, the larger opportunity for growth will be from the younger, more female audiences. Promoting our great entertainment and movies content and the next generation of on demand and Sky Go streaming products will be key for this group. Now let's take a look at a couple of the key data and insights tools we've implemented over the last 12 months that are helping us to better understand and serve our existing customers and begin to unlock the opportunities for growth. The first of our data and insights tools is Sky Nation.
In the middle of New Zealand's COVID lockdown last year, we invited our Sky customers to become part of the Sky community's feedback panel. And this is a space where we can co create the future of Sky with our customers, tapping into their view for testing ideas and concepts, big and small. This community really has been a game changer for us. We have over 25,000 members, our customers, from all over New Zealand who have given us direction and feedback on more than 15 business critical projects. We've received over 65 1,000 surveys and also conducted regular one to one interviews and prototype testing both at Sky and in customer homes.
Our customers are also really enjoying being given a voice and helping shape a better sky. They are feeling the love, too, and the Net Promoter Scores of the customers involved in the community have increased upwards by 10 points. And we received really lots of great positive feedback as well as indicated here. One example key decision our customers helped us with was our Optus satellite renewal. And so in a world of streaming disruption, it would have been easy to assume that satellite is an outdated technology.
However, this could not be further from reality as we found the majority of our Skybox customers still preferred satellite over other alternatives for consuming content. So the next area that we're really focused on is leveraging the incredibly rich and vast data assets that Sky holds, turning them into valuable insights. 12 months ago, Sky's data was sitting in different legacy systems, and these sources had little connection to each other. We also had limited tools to mine that data for insights, so it was almost impossible to get a full picture of our customers and their engagement with us across products and packages and our rich viewing data, which includes over 250,000 connected boxes. Now while building out data internal data foundations, we also had to move at pace.
So we partnered with DotLoves the Data to provide expertise and manpower to build a single customer view database and an agile analytics approach to make insights readily available, particularly for those really big strategic decisions. A number of these strategic initiatives where we have been using both the Sky Nation community and our new data insights capability with Dot will be covered by my colleagues further on in today's presentation. So you'll get to hear more about how we're using these powerful tools in strategic and practical ways throughout the business to inform our decisions and lift performance. So far, I've talked about customer needs and views and revealed a bit about how we are using our new tools to drive growth. I also mentioned earlier that we need to take quite a segmented approach to growing and maintaining our customer base.
I'm pleased to share a very high level view of our life stage segmentation model, which was developed from the LEK New Zealand marketing sizing study I referred to earlier. This was a robust sample of over 2,000 paid TV and streaming consumers and was created a very simple life segmentation using life stage, age and income as key defining variables. It's worth noting that the segmentation not only includes Sky customers, but all consumers of paid TV and streaming market. This life stage segmentation helps us understand where we are today and where the spaces are for growth. Each segment has unique needs and behaviors and opportunities, and the framework is an awesome tool that helps us to create winning strategies and ensure we execute with excellence, meeting, if not exceeding expectations of these consumer groups.
We use this framework to guide all customer facing initiatives in designing new products, personalizing our customer experiences through to creating content optimization strategies and targeted marketing. We can see here that Sky already does extremely well in the Heartland Champions and Connected Business segments, with Sky, Neon and SkyFort now representing 83% 84% of pay TV spend in these segments. And together, they account for 40% of New Zealand households and 40% of total market spend. As you can see in the aspiring family segment, they account for 29% of market spend, and there is significant room to grow Sky's share of this. I'll briefly take you through the key headlines for these life stage segments now.
Our native streamers. These households are younger. Without kids, they are really looking for convenience and entertaining content that suits their lifestyle. Watching content is an important aspect to their daily lives, and they are the biggest streaming viewers. They are likely to have Netflix and Neon, and a lot of native streamers are also using Sky Go, maybe even borrowing off their parents.
And we think this is a good thing as it means that they are getting great exposure to our awesome content and brand. And they get as they get older, they move through the other life stage segments and their propensity to subscribe increases. We focus on acquiring native streamers through Sky Go as well as Neon and Sky Sport Now. Onto the first, the family segments, budget conscious families. These are lower income households with younger children looking for affordable content that suits the whole family, and these younger families value their time at home together where the TV brings them together.
Entertainment for all ages is important to these families, and they are looking for good value options here. We will attract budget conscious families through price and packaging innovation, strong offers as well as bundling with Sky Broadband and of course, our existing breadth of content message. We need to help them by being a little more flexible with our pricing and packaging options, and we've done a lot of work looking at what pricing and packaging optimization might look like. Our customers are telling us that an evolution, not a resolution, would work for them, and we'll be focusing on continuous optimization in this space. Aspiring families are upper income households with kids looking for a one stop shop, simplicity and convenience.
They are juggling work and the kids, so they're looking for solutions that keep things simple and will often seek convenience over cost. They want content that covers all their needs in one place, particularly for the kids, and this segment is the highest value segment and represents the biggest share growth opportunity. We will grow aspiring families through becoming the ultimate aggregator, bundling other apps and affinity brands and services through Sky, such as Disney Plus, Netflix and Google. Connected Nestors are upper income, older single and double income homes without kids. They are interested in premium curated content that's good value for money.
And Sky has a strong representation in this segment, so we continue to nurture connectedness through innovation, content discovery improvements and recognition. And finally, Heartland Champions. These are lower income, oldest single and double income homes with our kids. This segment skews to regional New Zealand and are the most committed to Sky. Heartland Champions are enjoying their newfound freedom from the kids leaving home or retirement, and TV enables them to stay connected to what's going on in the world.
They want a variety of entertainment options that fit their budget, and they love Sky. They represent the most value, so a segment we need to protect and nurture, and we will retain Heartland Champions through service and recognition, which Corey will talk to later on. As well as better understanding our existing customers, we now clearly recognize how to target growth in each segment. So in closing and to summarize, 600,000 households are open to Sky, representing a sizable opportunity for growth. Sky is also leaning into continuing to superserve our customers who are very satisfied with the Sky experience, while working hard to evolve our offering to increase the diversity of our customer base.
As Johnny will touch on shortly, Sky's content is world class, And it's the strength of this and breadth and depth of this offering, the power of our bundle as well as relationships with strong affinity brands is very attractive to both customers and partners. So on behalf of our customers, thank you for your attention. Nga mihinui. I'll now pass you over to Johnny Arrington.
Thank you, Maria. Sure, everyone. I'm Johnny Arrington, the Chief Commercial Officer here at Sky. First up, I'd like to build on what Maria has just spoken about regarding use of insights to demonstrate how our content decisions deliver value to customers and our owners. I'll then touch on the ongoing changes in the global content landscape and how Sky is positioned within this evolving industry.
So as we've mentioned, Sky has always used data to evaluate content from both the customer and the commercial ends. However, new tools are always enabling deeper and more granular insights. We can dig deeper into these new tools to inform our rights negotiations, seeking out that value in engagement, identifying opportunities to optimize our content while managing programming costs. What you're seeing on screen is an example of the visualization of integrated Sky customer and viewership data for more than 250,000 connected set top boxes partnered with Dotless Data. We are able to look at content value at a household level, reviewing this data by event or at a genre, sport, channel, title or distributor level, understanding what engagement looks like by household.
This optimized tool as well as Sky Nation, as talked to by Maria, allows us to make more customer centric content decisions at Sky. We use this data in a strategic way to assess how our customers interact with our content, but also how potential changes may impact the customer value proposition. And to that point, here is a recent case study of the impact of a small change to our content lineup. We reviewed engagement, including viewership, and established the value of this particular competition to the average household Sky Sport consumption. We were also able to benchmark this data against the household's overall Skybox viewing or engagement.
In this particular example, we can see that there were around 2,000 households where this particular sporting competition made up 20% of their Sky Sport viewing across the season. However, only 120 households will be deemed super fans based on our metrics. And on that basis, we were comfortable in not renewing these rights. Utilizing this data, we were able to be very focused on our following actions. Number 1, we communicated in an authentic and transparent way to the most engaged households to tell them of the change to our sporting rights around this competition.
Number 2, we reassured these customers directly and referenced the relevant and much loved content that we had available to them informed by our data. And 3, we were also ready with reactive offers in place to keep these customers. The outcome was very clear and that this data driven and transparent approach resulted in no detection of churn, even with the small but vocal fan base. The need for data is compounded by the ongoing changes in the content landscape. The biggest global content creators and distributors have been consolidating.
A couple of years ago, Disney acquired 21st Century Fox, which signaled to the market that consolidation was on the cards. More recently, further consolidation has occurred with Amazon acquiring MGM Studios and WarnerMedia tying the knot with Discovery, subject to regulatory clearance, and we know how that can go. Then you throw COVID into the mix. The impact of COVID was tough on our business, particularly on our commercial customers and online sport. COVID also had an effect on the volume of content production.
This led to a rethink of studio content strategy and because of our depth and breadth of content, we were still able to continue to deliver valued content effectively. It also helps us further confirm the sports content that resonates the most with our customers. We have deals and long standing relationships with both WarnerMedia and Discovery, And we recently renewed our Discovery partnership with a strong co exclusive element. We continue to build on that 26 year relationship locally here in New Zealand with Game 1, the State of Origin and upcoming selected Wimbledon matches appear on Discovery New Zealand's Channel 3, courtesy of Sky Sport. We've also witnessed small streaming platforms entering into an already crowded New Zealand market.
These streaming platforms include direct to consumer, plays by sporting codes and studios. It is worth noting, however, that this is not a new phenomenon. The likes of the NBA, UFC, NFL and others have operated a direct to consumer model in Aotearoa New Zealand for a number of years. There are already over 3 dozen direct to consumer platforms in market, and we coexist with them all. Insights data show us consumers are paying for an average 1.7 streaming services and have limited appetite to extend this across more streaming platforms.
We are aware of those offerings that have garnered mass appeal, And Dan will mention that we have been fortunate enough to build on our Disney relationship to offer Disney plus to new Sky Broadband customers. The globalization of the direct to consumer offering enables further co exclusivity opportunities, which means we can still rock to bring the content that matters to our customers while managing our programming costs. With some key renewals and the summer and Winter Olympics locked in, we expect these costs to rise in FY 2022. But going forward, through partnerships and co exclusivity, we aim to manage our costs within a range of 45% to 50% of revenue every year. Despite the changes, there are constants.
New Zealand remains a relatively small market with little scale. Rights holders such as studios are looking for relationships that make sense and where they can make their content available throughout the whole of Aotearoa New Zealand. Sky celebrates the best of sport and entertainment content, both globally and in the domestic market. Our aggregator model with high value content plus strong market penetration are a couple of key reasons why we are considered to be a trusted partner. We're a one stop shop for customers.
Sky customers are TV lovers. They watch far more TV than non Sky TV customers. In fact, as you can see, the daily consumption is almost double on Sky versus elsewhere. Our customers love having access to their favorite shows in one place and are willing to pay a higher price to have quality services in a single easily navigable destination. Sky customers love a breadth of content from drama to documentaries and from kids to crime.
Nielsen tells us unsurprisingly that Sky customers love sport, but our customers like drama more than anyone else. In fact, they are 40% more likely to watch drama content. As you can see, our customers over index across each genre, which clearly shows that this content sits naturally within the Sky family, where this is the greater opportunity for reach and viewership. Key exclusive sports content such as the All Blacks can drive season acquisition, but the breadth of content has strong appeal and holds engagement across a variety of tastes within the household. In fact, the breadth of content offering not available free to wear is the main reason customers subscribe to Sky.
Put simply, customers may come for the rugby and stay for the living channel. Skybox customers love great content, but they are not just linear consumers. They are just as likely to subscribe to streaming services with usage averaging 60% compared to 61% across the New Zealand market. With the availability of streaming options I mentioned earlier, ongoing fragmentation and app fatigue, Sky's operating model as an aggregator of content comes into its own. Coupled with the tech innovations and new set top box plans that Bridget will talk to, we have the ability to keep growing and retain our position as the content destination of choice.
To maintain this position, we need to continue our ability to make the most informed decisions on what content matters most to our customers. The fact is that we're a content business. We have strong relationships with the biggest, the most renowned studios in the world right through to the local content creator. This is over 530 content provider relationships across sport and entertainment. As you can see from the brand diagram, we are already an aggregator of the world's biggest content owners.
We were very pleased to announce the extension to our ESPN partnership across all our platforms, which has appealed to a younger cross section of our customer base. Sky achieved significant reach, being the only provider in the country where customers can consume through satellite, free to wear and streaming. We reach more than 3,000,000 New Zealanders in ways that work for them. Sky customers are watching enormous amounts of TV with more than 2,000,000,000 annualized hours of linear TV and averaging more than 5,500,000 streams on Sky Go and Neon combined each week, outpacing other local streaming services, including TVNZO on demand. Sport is in our DNA, and we continue to be considered among the best sport production teams in the world.
You may be aware that the IOC requested our services for athletics, rugby and football at this year's Tokyo Games. We've already created over 500 hours of original sports content so far in 2021, covering a breadth of sport not rivaled in New Zealand. On origination, we celebrate local, and we're committed to supporting New Zealand creative industries and talent. Our Sky Originals local production offering appeals to both our core customer base and new emerging customers. Year to date, we've been able to access $8,000,000 from a variety of funding pools to further grow our origination portfolio.
We can't let this opportunity go without mention of our very recent and incredibly exciting extension of our partnership with the NRL and New Zealand I believe. It is very much a relationship that is not a transactional deal, but one where all organizations are aligned on key principles and goals, including participation in game development, where we're working on roadshows around the country with the Warriors and New Zealand Rugby League. We're reaching as many of existing and new fans in ways that work for them, including partnering on nrl.com. And we're supporting the strengthening of the women's game and the next generation of league players throughout Aotearoa and helping those competitions find a platform. We are thrilled to be able to secure more rights that matter for our customers and help support the development of the growth of League from grassroots through to high performance.
So we've heard about how we're using data to make more informed content decisions in bringing content that matters to our customers, how Sky is able to manage the changing landscape as an adaptive aggregator and the importance of the breadth of our content offering. Sky's multi platform and world leading pay TV penetration rates provides unequaled access for content owners and distributors to reach audiences and monetize content across a variety of revenue streams. Partners feedback that they also see value through our approach to insights and how we could jointly use data. They also understand the level of expertise we bring to our content knowledge and productions. Sky listens, innovates and has a solid breadth of content, and we're willing to try new things.
As an aggregator, we support our loyal, current and future customers to find the content that matters to watch in ways that work for them. And finally, we are dependable, and rights holders value that we provide reliable delivery to customers from homes to hotels throughout New Zealand. But rather than speaking on behalf of our partners, let's hear from them direct. Well, Sky has been an amazing partner for rugby over the last 25 years, obviously, and it allowed us to do a whole lot of things in enabling the game to reach bigger and broader markets. We've created fantastic competition off the back of our partnership with Sky and also invest into the community game and see more and more people be engaged with the game.
It's a great partnership. It's a long standing partnership, which has been a win win for both organizations over a long period of time. Seeing the growth in production techniques and the way the game is presented now as opposed to 25 years ago has also been a great leap forward. So they are committed to always improving, driving things around innovation and technology and wanting greater customer experience. We're constantly reinventing ourselves, and we're constantly driving each other to be better.
Hi, I'm Blaine Kai, General Manager for Discovery in New Zealand. We've had a long and successful partnership now with Sky for 26 years. More recently, we've brought some innovation to trends, bringing a premium 40 moment and state of origin onto 3, which delivered incredibly strong results to both 3 and Sky. As we look forward, we're finding new ways of working together. At the heart of that is expanding content to new audiences while still superserving the Sky audience.
Here at Discovery, we're also expanding our content footprint. At the heart of that is our relationship with Sky, a trusted, active and long term partner who will continue to play a big role in everything that we do.
Sky have been incredible partners of Rugby League and NRL for a number of years now. We've developed a very close relationship over the last couple of years. There's going to be a lot of innovation that we see roll out with the production and the screening of NNRL Games in New Zealand. And I'm excited to see this innovation roll out as Sky New Zealand takes our fans even closer inside the stadium. This deal is important for us because it's a partnership, not a media rights deal.
And this partnership means that together, the NRL, New Zealand Rugby League, the Warriors and Sky New Zealand can work as one to grow Rugby League in New Zealand. We know over 1,000,000 people are interested in our game in New Zealand. But importantly, we want to grow participation. We want to create meaningful pathways for boys and girls, for men and women, to play our game. We're incredibly excited for what the next 6 years holds for both of us together.
Thank you, Johnny, and great to hear from our partners. Q and A time, the first question answer. So here I'm joined with Johnny and Maria, and we welcome the first question.
1st, we'll go to Ari Decker from Jarden.
Good morning. Ari here. So just wanted to explore your strategy for accessing those 1,000,000 customers that are open to paid content a little bit more, particularly in terms
of the role that you sort
of see pricing, packaging, innovation having. If I read Slide 16 right, you're sort of indicating that only 15% of your customer base, the budget conscious families or your target audience, require sort of price and packaging innovation. Is that where you've got to from all this work that you've done that it's actually only a pretty small set that where pricing is going to be important? And then I guess if that is the case, given it is such a small part of the overall market, How are you going to look to sort of approach that so as not to kind of cannibalize on the much bigger segment of the market that is less price conscious?
Good morning, Ari. Thank you. No, we don't see that as the only space that we're going to go. And I'm glad you asked about that. We obviously didn't go into detail on this presentation around value for money and the work that we've been doing there.
We're very, very focused on a much bigger market space than that. Marie, you may want to give a little bit more information about some of the insights that we have in terms of that bigger opportunity we see in terms of our value for money. Yes. So you would notice from the slides that we actually aren't penetrated fully in all those segments, so there absolutely is another opportunity. And budget conscious families, while they are looking for a bit more flexibility and a little bit more accessibility into Sky, we also have native streamers who can come into our Sky whanau through Neon and Sky Sport now.
So yes, I think that's what our insights are telling us to date. And as Sophie mentioned, we are certainly working our way to the value for money piece at the moment with the wider Sky team. Thanks, Maria.
And just on that, so in terms of the timing for more detail on that and I guess rollout of some of the initiatives across the broader target. Is that going to be sort of timed with the new set top box? Or might you be approaching that ahead of then?
So, Ari, I think the key thing to note is that we don't necessarily see it as a big bang approach. In fact, we're kind of testing and learning every day, and Corey talks a lot about that. Certainly, the new box coming into market creates a big opportunity for us to have another conversation, not just with our existing customers, but with new customers as well. So we think we're going to be rolling out some things, testing and learning this calendar year, and we're excited about what the new box will also bring for us next year.
Great. And then just one question on programming or maybe a couple of sub questions. Just firstly, the target of 45% to 50%, does that exclude whatever you end up doing on broadband revenue? So is that because obviously that is pretty low margin and could swing your revenue range quite a bit. So is that target on revenue excluding broadband?
Well, we're going to cover a bit more in Andrew's section. And I suppose from my perspective, I did sort of query with the team, do we call that a target? Or we just have to acknowledge that that's where we are right now, not just on the programming rights, but also the production costs that sit there. Over time, I think that we have an opportunity to actually to bring that down, but it is a percentage of overall revenues at that juncture, Ari.
Sure. Okay. And then just in terms of the co exclusivity deals that you're starting to do, can you sort of just maybe give a little bit of flavor in terms of how that is benefiting Sky's bottom line? And perhaps you could use the ESPN deal as an example. If they activate going to direct in this market, do you get a fixed reduction in the cost you're paying them?
Or will it depend on a whole lot of variables in terms of their take up and impact on your numbers and those sorts of things?
Thanks, Ari. As you know, we don't disclose confidential information in deals. We did talk about the Discovery dealer interim, and we talked about that sort of 20% to 30%, but it will depend on each deal. But I'm going to hand over to Johnny to give you a bit more color on ESPN. Thanks, Johnny.
Thanks, Sophie.
Yes, sorry. As you can imagine, each deal is slightly different. The nature of the co exclusivity does vary depending on each deal. With regard to ESPN, in the event that ESPN plus does launch during the term of our partnership with them, then yes, the terms will start to vary. But of course, the exec specifics around the financials are confidential.
Sure. And then last question on the thread and
No worries. You go Harry.
Sorry, just last question on the thread. And presumably, you're not going to want to comment on it, although you may. There's media reports that the NRL rights were up 70% from sort of circa $90,000,000 to $160,000,000 In terms of getting that cost base to sort of your target levels of revenue, do you expect that the offset to some of these increases that you're taking at the moment is going to be more likely to come through some of the savings you're getting in co exclusivity where you do retain the content? Or do you expect that you will be letting go of content over these next few years as well?
So it's a combination of all of those factors, Ari. Yes, we see co exclusivity as being important. We're also reviewing everything we do from associated programming rights costs to see how we can manage it. And absolutely, as both Maria and Johnny have talked to, we rely upon that data and insights to make the right decisions around content, which means that some content we won't necessarily retain. But of course, we remain open to partnering in ways that make sense for our customers.
Thank you.
Thanks,
And we'll take our next question from Phil Campbell with UBS. Your line is open.
Yes, good morning everyone. Just kind
of following on from Ari's question and asking
it in a slightly different way. What was your data insights data telling you about the NRL viewership and customer base in order to kind of make a decision on bidding for those rides?
Phil, nice to hear from you. On that note, I'm going to hand over to Johnny.
Yes. Thank you. Hi, Phil. We had, as you can imagine, quite a lot of data that was coming through in relation to the NOL. We do have a core base of customers who were highly engaged in the NOL, but we also saw that there was a level of engagement beyond our core customer base that we could talk to through a number of different ways.
And that was the nature of the partnership that Andrew Abdo in the video referenced. So we're working on a number of different initiatives, Phil, including looking at how we enhance nol.com with the NOL. And part of that will be handing off to Sky so that we will have an opportunity to embed within nr.com the live streaming of Sky Sport now.
And I would just like to also add, Maria, we've got a great partnership with TD3, which we're very excited to talk about in terms of viewership. Yes, absolutely. So when we look at doing the State of Origin game 1 on 3, we were really thrilled with the results there. So we saw about a 14% increase on Sky's game 1 from last year as well. So we grew our audience on Sky as well as 3 having pretty much owning the target demo at that time slot across 3 there that night.
So I think there absolutely is wider audience outside of Sky and a place for NRL on Frutar.
And we have another follow-up question from Ari Decker from Jarden. Your line is open.
Sorry, I was just getting back in the queue for the next Q and A segment.
That's good. Good to know. Very excited about that. Any more questions for us on the first Q and A?
We have no further questions in the queue.
Great. Thank you very much, everyone, and look forward to hearing from Ricky now.
Good morning. I'm Ricky Tayo Rawa, Head of Entertainment Streaming here at Sky. I'm really pleased with the growth we've seen in our streaming services. Today, I'll unpack that strong growth and allow you to peak under the hood of the transformation driving it. As I'll demonstrate, our streaming service is now afraid with a start up mentality, mix of breed tech, great data and a close knit high trust team.
The subscriber growth has been strong over the last 3 years. You may recall that some free Livebox customers from Spark rolled off the base once we merged Livebox and Neon. Outside of that one off impact, we have grown our streaming base consistently over the last 3 years, and we'll likely continue that trend in H2 of FY 'twenty one. As a result, we now have a streaming business that in H1 was tripled to subscribers and doubled the revenue of H1 2 years ago. For Neon, we're almost 1 year into our combined entity, taking the best of Lightbox talent and technology, measure of Sky capability, know how and content.
The results to date have been remarkable. For context, when we merged services in July of last year, we experienced a step change improvement in results. As an example, last August was our 1st full month as a merged service. It was also the 1st month in Neon's history with over 80% of the base active. But we're not stopping there.
It was great in August to get over 80% of the base active. We've now done that in every single month since. May's engagement figures were up 4 percentage points from August. Tenure has been extended by over 3 months, and our base has gone by over a third. Across April May, we announced and then implemented a price increase.
Yet we've continued to grow the subscriber base in every single week this calendar year. So what's fueling this growth? Data. More accurately, the way data underpins the promotion and display of content. We extract maximum potential value from each title through the 3 step process shown here.
Before the show goes to air, we're building audience and excitement. We use data science and deep content experience to identify potential customers and bring them in. If it's a returning show, that means getting them through old seasons, so they're ready to go once the new one starts. As a team, we're getting better at telling people the other shows they'll actually like. As a result, they're listening to us more.
Once the show launches, automatic processes kick into action. We send out personalized recommendations as someone starts to wrap up their current show. In parallel, we have an automated simulation program running across the base. For customers, the viewing drops off and they meet a threshold of an activity, we communicate a little more persistently to them. If their viewing picks up again, we'll then ease back off.
After season has ended, transitioning viewers onto other shows is critical. They're also adapting our release schedule and promotional activity to make the transition from one show to the next as smooth as possible. Successfully managing this transition drives usage, reduces churn and increases revenue. Looks simple, right? Well, it's a few bullet points here, but it's coordinated interdisciplinary highs of activity and execution.
And here we see the results. The tail line on the chart represents daily viewing numbers, for example, show the discovery of witches. The shape of that line highlights the key phases of work. A lift is a good assignment for the old seasons, high engagement in season and a drop off once the season ends. You'll see in this case that we successfully migrated them to other shows.
The blue line represents 3 of the shows we recommended to this base. So summing up, we're successful in growing an audience, holding them and transitioning them to other shows. In this particular case, we're able to shift 67% of this base across the 3 of our targeted shows alone. That's how you retain customers. As mentioned earlier, we're flexibly managing our content schedule to keep that transition between shows smooth.
Here's a live example of how we're programming for a specific drama loving type of customer. At the top of 10 poles, these are our big hits. They come through fairly regularly due to our output deals with the best studios in the world. Around that, we're acquiring scheduled smaller shows to keep customers engaged. Now we know that everyone not everyone will like Domina, Loudoun and Eden, but our insights suggest The Handmaid's Tale audience will.
And we believe that having on a few of these shows, plus some library content, will keep these customers on the service until Yellowstone drops later. This process has been repeated across customer segments in parallel and continually tweaked. So to summarize, Neon's success is a story of data and how data, content and comms all intersect to drive viewing. Turning focus to Sky Sport Now. Sky Sport Now has come out the other side of COVID in better shape than ever before.
International export was largely at a standstill from March and into June, so we've used July 2020 as the comparison period for the stats listed here. What have we achieved since then? Well, we've kept engagement within reach of that bounce back euphoria of last July. We've extended customer tenure, and we've significantly grown our paying base. On the product side, live sports has historically driven interest in Sky Sport now.
And it makes sense. Our range of live sport is awesome. But encouragingly, we've been able to build on that solid base with significant growth in other areas, pay per view events, docos, studio shows and replays. Overall, strong engagement is driving a stickier base, leading to subscriber and revenue growth. Like Neon, Sky Sport now takes a data led approach to stimulating growth.
The sporting calendar is fluid. New personalities emerge, favorites get knocked out and new stories emerge from nowhere.
Our processes
have to mirror that agility. So we're constantly scanning our internal data and the external environment for opportunities. We then execute rapidly with custom advertising, offers and audiences. Often those opportunities emerge on the day of the event. The responsive marketing has driven customers into the service over and above what we would otherwise see.
Just as important though, we're then converting those customers to a high commitment package at a 50% rate. So overall, Sky Suite now emerged from COVID with an excited audience that we have maintained and grown in the 10 months since. An agile, data led approach to customer comms is bringing customers in the door. And content quality and growth in viewing across all areas of the product is keeping them.
So where do we expect
the services to be in 3 years' time? Both services face an increasingly competitive market. While maintaining very high engagement and strongly growing the base are very achievable. Our content remains market leading and the digital capability of our line will continue to evolve. Tenure will increase further as the services mature.
So to wrap up, our streaming services both have engaged growing audiences. A nimble operating model executed with a data led performance mindset is driving that growth. Now over to Corey, who'll talk through where we're at with the Skybox business. Hi. My name is Corey.
And in this segment, I will discuss the stabilization of our Skybox customer base and what we've been working on to unlock value. Now as you've heard in Sophie's opening, nurturing and growing our Skybox customer base is a key part of Sky's strategy. And as part of this, we are already making good progress in stabilizing the base. Although we recognize that we're not there yet, at our interim results in February, you would have heard us say that we'd seen a net growth in direct customer numbers for the first time in 5 years. That's a really encouraging signal that we are reaching a stable base, although we still expect to see some volatility in the short term as we close in on our stabilization goal.
Now two things really played a part in that half year results. Firstly, we saw a stronger acquisition, which were at a full year high. And secondly, annualized churn continued to improve to 12.4% compared with 12.8% in the year earlier. Stabilizing the customer base is getting us closer to the point of stabilizing the revenue contribution as most of the clients that we've seen in recent time is directly due to customer loss. So what are some of the things that are contributing to stabilizing the base?
Well, among others, changes have been made. There are 3 recent initiatives that I wanted to mention. 1st is a successful migration of 34,000 Vodafone reseller customers. This is important as they now have a direct relationship with Sky and the results are hugely encouraging. We've seen a churn improvement of 55% of these customers through the 6 months prior to or post migration.
That's based on comparing annualized churn of 27.5% for reseller customers prior to migration to 12.5% post migration. That's brought them immediately into line with our Sky based churn. Secondly is the Sky Go companion app experience. Now this is a value add service that allows our Skybox customers to take Sky's great content with them. Our investment in this new enhanced app was released in March and will set us up for the future.
Already, 186,000 of our customers have used the new Sky Go app, and we have 140,000 continuously active customers. That's an uplift of 27% or 30,000 customers actively using it. Now the reason this is important is that we know Sky Go users are 8% less likely to churn within the 3rd 12 months compared to non users. The significance here is that we're improving retention at a point where customers are most at risk of churning. So it's reasonable to expect this positive impact to continue.
Then the 3rd recent initiative is the successful launch of broadband, and I'm not going to try and steal the thunder on this one because you'll hear more from Dan on this soon. But from my perspective at least, I'm excited to have this in the toolkit. So aside from the bigger initiatives, what else are we doing to nurture the valuable Skybox customer base? When it comes to retention, the continuing improvement of churn has been supported by our test and learn approach. It's seen us review all the offers we have in market.
It's renewed our focus on Sky's care center capabilities. It's also seen us invest in technology in areas where our customer measures show that it can improve customer satisfaction. And all of these things are helping us to engage with our customers in a more meaningful way. So at our interim results in February, we saw significant improvement in churn within key new customer segments. In particular, we saw that customers with up to 1 year tenure had 27% improvement in churn rates.
And we also saw that 15% improvement for customers with a 1 to 2 year tenure. It's important to note that other contributing factors for the improvement is our strong core loyal Skybox customer. You can see on the chart that 70% of our Skybox customers have been with Sky for more than 5 years, and their churn rate is incredibly low at just 6%. Until now, we've largely used non targeted communication with our Skybox customers. But we're now at a point where we are able to personalize our interaction as we build on our capability with Salesforce.
This is vital as it provides multichannel campaign capability with personalized and targeted communication and advanced post campaign analysis. It means we can now deliver personalized offers to the right customer at the right time, price and communications channel. This is immediate benefit for us and our customers, and it's going to be expanded substantially with the new Skybox as the need for personalization is intensified. With this in mind, we're building out our capabilities in personalization and loyalty and leaning on sales force to unlock the opportunities that have so far been untapped. We're also continuing to focus on data and insights that shows the impact of acquisition offers over time.
This has helped us to reconsider what early tenure churn looks like and to make informed decisions on new proactive activity to retain our base. And as Maria mentioned, we're listening to the voice of the customer through the Sky Nation panel and incorporating that feedback into our business planning and roadmaps. We're going to take a closer look at our acquisition offers now. Here again, our test and learn approach has been focused on not only driving sales volume, but also improving the quality of acquisition in terms of the cost and measuring outcomes. Our key sales channels include our inbound call center, which is our largest acquisition volume channel and driven by marketing initiatives, digital sales via sky.coatednz and direct sales channels such as telemarketing and door to door, which are all mostly linked to 12 month contracts.
Now with that in mind, these are some of the ways we've been improving. Now all of our acquisition campaigns are informed by customer insights, and we're continually refining the process to track post campaign effectiveness. And as you'd expect, we're measuring the acquisition cost, margin and revenue results. We're continuously reviewing campaign outcomes as it informs new campaign planning. And a big part of our acquisition success is customers who want to rejoin Sky.
In addition to new customer acquisition activity, there's been a targeted approach to win back previous customers. And this has resulted in over 20% of acquisitions coming from returning customers. This is significant as these customers tend to have a lower cost to install and also a lower 12 month churn rate compared to customers who are new to Sky. We've also tested the application of varied discounts from our inbound call center, which had shown really good results. We've tried various combinations and removed deeper discounts, and it's proved successful as we have now reached and are maintaining a conversion rate of over 90%.
Another success has been that we've been able to double our digital sales channel contribution following our website relaunch in October last year. This is meaningful as it delivers an improved customer journey and buyer experience, while at the same time delivering a reduced variable cost per acquisition. We're continuing the test and learn approach to further improve our conversion. The other opportunity this gives us is streamlining the process to drive down resource cost through automating the digital process with our outbound telemarketing. The improvements we've made mean that we are now holding an attachment of 2 or more premiums for every new sale.
What I mean by premiums is things like taking additional service such as movies or sport. This has increased the average ARPU ad acquisition by $7 The test was designed to improve payback metrics and increased annual subscriber revenue, and the learnings have been applied to all outbound telemarketing as well as for our inbound call center. So how does the acquisition momentum and our more intense focus on retention impact on the outlook for Skybox?
Well, it really speaks to
our ambition to grow our Sky base. While we hold this momentum of stabilization of our customer base and revenue. We're going to do this by delivering stronger retention as we target annualized churn at a range less than 10%. We firmly believe this is doable as we work to return to growth in our Skybox business. I'll now hand over to Dan to expand on the exciting business of Sky Yes, but is it fast?
Yes. It's fiber. It's like we're fast. So it can handle all your entertainment needs. Like this.
That. And then it's so fast you'll never have to worry your little head again. Oh, do you know it's a lot little? What? Our WiFi coverage is simply huge.
It will cover your house. It's a pretty small house.
Or it's a model.
Ask about the setup. Tell me about the setup. Yeah. It's simple. You could do it yourself or my personal fave, ask for our super setup technician.
They'll set up your broadband, connect your devices, and we'll look damn good doing it. Cool. And how much does it cost? For Sky TV customers, our lightning fast Wi Fi is from only $79 a month. So don't touch that.
They're like paying for a chicken and getting a bald eagle. I like it. So what are you waiting for? If you want amazing broadband at a super standard price, then welcome to Sky Broadband. It's my part.
I do that. Yes, Sky Broadband has arrived, and we believe we couldn't have launched at a better time. Kiwis are demanding a higher level of quality and reliability from their Internet as online use and demand grows. This is something COVID accelerated with all of us spending more time at home. Competitors are chasing a fixed wireless strategy, a strategy that delivers economic benefits to their business, but a poor quality experience for their customers.
With our superior fiber and WiFi 6 product combination, we're positioned well to provide our customers great quality, great value with Sky Broadband. Kia ora. I'm Dan Kelly, Head of Broadband here at Sky. Today, I'm going to take you through the journey we took to launch Sky Broadband, covering our approach to entering the New Zealand market, our unique product and service proposition, and I'll touch on some of the initial results and how we'll measure success. To break through in a highly competitive market, we knew we would need to understand our customers intimately.
We started with customer research and co design. Customers had a lot to share, especially the frustrations they experience with current providers. Customers are confronted with complexity. We needed to be simple, intuitive and more pointedly, untelco. Not everyone is a tech expert, so we needed to be empathetic to different abilities.
You expect your broadband to just work, but when it doesn't, we needed to respond quickly. Customers want to be empowered, so we needed to give them control. And we also had very loyal customers who needed that loyalty recognized. We entered design and build with a deliberate phased approach, which continued to involve customers along with our Sky crew. Kiwis knows Sky for its quality and reliability, and we knew there'd be a lot of attention on how we delivered broadband.
A crawl, walk, run approach was decided our best path. Once we had our minimal viable product, we trialed first with Sky staff, allowing us to test the technical service and hardware. And when we had our digital sales capability, we extended the trial to customers. The trials taught us that we needed to improve our online purchase journey, but also increased our confidence in our decision to go with leading edge Wi Fi 6 technology.
With product and
channel confidence established, we entered a targeted selling phase, progressively turning on channel and marketing capabilities to conduct those final pre launch tests, hardening our operational muscle. It was never our intention to become a telco, so it's important for us to find the right partners to help deliver Sky Broadband. Vocus is central to our family of partnerships. As well as providing Sky with network capabilities, they're a strong source of expertise. We value greatly the partnership that we've built with Vocus and the Vocus team.
Working with New Zealand's 4 fiber companies is obvious, but it's also a symbiotic relationship. Fiber delivers the great experience that we need for our customers, but those fiber companies also need Sky and companies like Sky to compete against emerging fixed wireless. Becoming a multiproduct business has meant reimagining and simplifying how we serve our customers. Implementing Salesforce for broadband has delivered that by creating a foundation that our Skybox business is also leveraging. With K ON, we're delivering the latest Wi Fi 6 technology into homes, extending the fiber experience even further.
No leaning broadens our reach and expands our support capabilities to help customers in their homes. Route this allows customers to fix Wi Fi issues quickly. And when more help is needed, it allows the Sky Crew to diagnose issues faster with customers. Innovation with MiWay and Vue AR is bringing Wi Fi to life with a unique AR experience. You'll get to see a little bit more of that later.
Our newest partner, Disney, strengthens our made for entertainment proposition with the offer of 12 months Disney plus This partnership is receiving praise in the market and a positive response from customers. One local media report said, for Sky, if it can convince the likes of Disney to add its heft to the bundle, it may also convince some of those lost customers back as well. One thing Sky has always been good at is identifying what content attracts an audience. Through this approach, we created a compelling broadband proposition based on 4 tenants: quality, value, service and loyalty. Kiwi families deserve great Internet.
This doesn't end with the connection into their home. Customers expect their Internet to perform all around the house. We've combined unlimited superfastone gig fiber plans with the latest Wi Fi 6 tech. This is like getting a 6 lane highway to the house and instead of an off ramp around the home, you keep getting 6 lanes to all your devices. WiFi 6 is simply faster, goes further and allows customers to connect more devices, with performance 30% better than previous generations.
We're offering this market leading tech package at similar prices in market for standard 100 meg or fixed wireless plans, representing great value for our existing customers and considerrs of Sky. Pricing is designed to be simple and allow customers to select the best plan for them. Recognizing some customers might want to spend a little less, 100 meg options maximize margin without unnecessary discounting. Families with larger homes that need Wi Fi to go further can access boosters for $10 a month. Our home phone is still important to some Kiwis, and we don't want barriers to buying.
So pricing is low and plans are simple. It's just $10 to get started and calling packs from $10 including mobile calling. We've also ensured there aren't any hidden surprises like joining or delivery fees. And we're recognizing our most loyal customers by allowing them to join with no minimum contract. We've made it really easy for customers to get up and running quickly, although we recognize some may still not feel confident to self install, so our tech crew are available to help.
Service is key to the Sky Broadband proposition. Our aim is to ensure all our customers are supported with the right blend of digital and human support. Our new Sky My Account app is giving customers more control over both their broadband and Skybox services. Access is via customers' existing digital ID, and we've integrated route lists directly into the Sky app to enable them to self diagnose Wi Fi issues, get expert advice, while also enabling our Sky call center crew to assist with the bigger problems. The app also includes other Wi Fi controls, which we'll continue to roll out.
We also had our local teams on hand with our switch squad managing customer moves, tech support helping navigate complex issues and technicians visiting customers' homes if needed. There's one more element to the service experience that engages our prospective customers. I'm going to let Sophie share this amazing innovation with you very soon. Sky Broadband is 1st and foremost about adding value to existing Skybox relationships. So customers are at the center of our marketing strategy.
Linking our own data and insights with data partners allows us to reach the right customers with the right message at the right time. Working with local fiber companies like Chorus, we're executing direct marketing campaigns that target the richest connection opportunities to maximize our access to subsidies that are available in the market. We've made very deliberate decisions to advertise where our customers are. This includes Sky's own TV channels, and it's proving fruitful as we're seeing a direct correlation with search activity. Warband is not necessarily an immediate decision.
So using Salesforce and other tools allows us to nurture customers by communicating different elements of our proposition through the journey from awareness, consideration and ultimately, purchase. A digital focus allows us to do this efficiently and optimize to different customer segments. Broadband is also benefiting from the introduction of new data tools. This shows up in various dashboards, enabling teams to monitor performance, respond and adapt to opportunities. So how are we going?
Well, let's start with what some of our customers and a few of our team are saying.
Before we had Sky Broadband, we were living in the 90s. It's important for us to be connected at the same time.
Absolutely loving having Sky Broadband.
It's just easy and it works.
It was easy to switch.
So easy to put in.
We set it up ourselves.
Plug it in, push a button and off we go. Literally minutes. Increase in performance, which is fantastic.
Sky Broadband is super fast.
The speed is way faster than what we were expecting before.
Plus there's a lot of shaming, like quite a lot of difference having the Sky Broadband because there's never the spinning wheel of doom. Can't play and it loads instantly. There's no waiting time.
We used to get the yell from the garage like, Dad,
what's happened to the fiber? Internet's gone. We have to
get signal out for the sleep out.
To all their separate rooms.
That changed when we switched to Sky.
We've got really good coverage upstairs.
We've got great coverage all over the house.
There's no issues with all of us being on at the same time. Whatever capacity is required seems to be there. So we wanted something that was going to deliver a reliable service for us. We found that the Sky Broadband has done exactly that. Broadband is not a topic of conversation in our house anymore.
I feel great about it. And so much so that I don't even notice it's a thing, which is kind of good because it means that it's working.
We're really proud of what we're hearing from customers and believe we're having a real impact on their broadband experience. Our fiber and Wi Fi 6 message is really resonating. More than 93% of customers joining Sky Broadband are signing up on faster 1 gig plans, and more than 17% are adding a booster. 20% of customers are joining through online channels, and another 45% are joining via non commission channels, keeping acquisition costs low. We're also pleased with 17% attachment of voice services amongst our early subscribers.
This is a high margin add on, and we know that within our traditional customer base, further opportunity exists. This is translating to a strong ARPU currently above $82.15 When measuring success, we will maintain a strong customer experience result through constant improvement to address and remove pain points, deliver a sustainable business model with positive contribution margins, demonstrate value to customers by growing broadband in our existing customer base and importantly, gain scale in the market. Our customer centered approach to delivering value has led to the successful launch of Sky Broadband. We have a compelling proposition to compete in the broadband market that supports Sky's entertainment credentials. Customers are responding well, and we believe we're on a sustainable path to success.
Thank you for your time today. We're now going to hear from Sophie.
Thanks, Dan. I'm really proud of the work that Dan and his team have done to develop and launch a successful Sky broadband service. We said from the outset that our entry into the broadband market was not about trying to become a telco, but rather that it was one more way to add more value to our customers. Now one of the frustrations we identified were those pockets of the home that have coverage gaps, and you can't really figure out why. This prompted us to ask the question, what if you could see your Wi Fi?
It turned out to be a great question with a very exciting answer. Introducing Wi Fi Guy. Wi Fi Guy is the artificial intelligence assistant who is helping our broadband customers or will be very soon troubleshoot their own Wi Fi needs as showcased in the following video. Now as we developed Wi Fi Guy, it quickly became clear to us that we'd only just scratched the surface of what's possible for supercharging customer experiences with artificial intelligence, augmented reality and new digital technology. And we also saw an opportunity to add more value to our sport partnerships.
From our perspective, being on top of our game in this space is crucial for engaging the next generation of Kiwis who live in a wholly digital world and for whom traditional TV and fan experiences simply won't grab their attention. There is just not the muscle memory for watching long form live sports. And so to explore what's possible, let's take a look at this.
Sky has an amazing history in delivering sports direct to you. And now we want to take a glance into the future to give you a taste of some really exciting potential initiatives that we are exploring. We want to enable fans around the world to collect and monetize key moments in sport and entertainment as well as giving back through revenue share through the players and sporting codes.
When the NBA launched Top Shot, it was a real oh wow moment. Suddenly, there was a breakthrough connecting digital fans to the sport in a fresh and exciting way. Everything is about screen on screen on their mobile device, on their computer. So basically, what we have thought about is really supercharged trading cards into on screen and making it collectible for the new media and the new audience. We're really just bringing the physical object into the digital realm where we are using a blockchain to tie in a special number, a sequence into that asset and that user can easily identify they have true ownership over.
It's all done using new technologies for digital collectibles called NFTs. Media and sports brands are increasingly seeing the opportunity for connecting fans with amazing content through packs of collectible NFTs.
Some of the sports that we are working with is multibillion dollars a year in revenue, And we have seen other competitors in the similar space that covers in the U. S. Sports that's generating 100 of 1,000,000 of dollars in sale. The opportunity unlimited once you can combine that digital and the fandom experience. What we are seeking are ways to deepen fan connectivity with the sport.
Sky are a partner that really understands all facets of the fan experience, whether it's in stadium apps, to deliver you live stats with the ability to gamify fans' digital interactions with us to capture their attention longer. It's all up for grabs, and we are so excited that Sky is exploring this space.
It's a pretty cool time here at Sky, and we're excited to continue collaborating with our sports partners, athletes and fans as we look to use technology to give communities, fans and players in increasingly innovative ways.
So as you can see, there are exciting opportunities that we're exploring. We're looking to connect with a wholly digital fan base by partnering with best in class technology providers, VV and mywave.ai. We're looking to add more value to our sport partnerships with collaborative solutions to fan engagement and, crucially, generating new revenue streams with inclusive revenue sharing arrangements in respect of these things called digital collectibles, noting the recent success of the NBA Top Shot model. And of course, we're looking for new ways to engage with content and players and fans at live events. Now these concepts around NFTs or non fungible tokens, called simply digital collectibles, and in stadium tools are just 2 of the opportunities that we're currently exploring.
But the path forward here needs to be robust. We're challenging ourselves at each phase to make sure that these are viable commercial opportunities that add genuine value to our partnerships, our customers and which create additional value for you, our investors. And while we're genuinely excited by this opportunity, the investment criteria we will apply and the resources we will commit will be disciplined and will not distract focus from the core strategy. The landscape for sport and entertainment consumption is changing rapidly, and we do need to move quickly. That is why working with expert partners like MyWave and VB in a collaborative way with our sports codes is crucial.
And I'm pleased to say the feedback to date from our sport partners has been overwhelmingly positive, and so we're excited about what's ahead. Looking more broadly at technology at Sky, Bridget is shortly going to take you through our plans for our new Sky box. But I first want to give you more context about how we've reached this point. Now I was here at Sky in 2019 when we canceled the IBP box. It was a tough decision, but it was the right one given the cost and delays and perhaps more importantly, because it didn't meet the clear customer need for a hybrid set top box.
And since then, we've been quietly and very effectively transforming the core of our technology at Sky. Now here's a snapshot of where we were a couple of years ago, where we had 95% of the infrastructure being on premise physical hardware. Today, we have 60% fully in the cloud with another 26% in transition. It's worth noting that most of that transition has happened fairly recently and that pre COVID, we still had close to 80% of our infrastructure on-site. Reinventing our foundations was no small feat and remains largely behind the scenes.
But importantly, it has also enabled us to make the choices we have around the new Skybox. The foundations are in place, and much of the hard work has already been done. And with that, I'm very pleased to hand over to Bridget. Kia ora. I'm Bridget McNeill, Head of Product at Sky.
I'm delighted to introduce you to Sky's new box experience. Firstly, I'm going to touch on the journey we've been through with our customers to get to this point. Then, the product proposition and experience we have co created with them. And finally, our partnership choice to deliver our new Skybox experience. We've been talking with a lot of Kiwis.
In January, we began the process with our customers to identify what the key areas of focus should be for our new box, with the goal to remain or become the primary entertainment provider in New Zealand homes. Through research, we've engaged over 6,000 New Zealanders and identified the features and experience we must deliver to achieve this goal. We discussed and validated with them the things that matter most, what Sky does well, what they love about Sky, what we need to continue to deliver on and what we need to improve to maintain their loyalty. Customers described to us what was defined as a connected entertainment experience, combining the very best of Sky, the unique content and experience that we bring to New Zealanders with the very best of streaming TV. They told us what they want and need.
They want and need the reliability of satellite TV, and they want and need the dependability of their local hard drive recording, and they want more. They want an experience that is fully integrated and personalized and intelligent and easy to use, and importantly, seamless between the Skybox and their personal devices. They want easier access to content and to get the best of local and global apps bundled with Sky all in one place. And customers made it clear our top priority had to be to create a connected and enhanced Sky experience with the breadth of Sky content is easily accessible and discoverable and relevant to them. Using the rich insights we gathered, we've developed a product proposition and 4 tenants to that proposition that group the features and experience around key customer needs.
It's for you, personalized and relevant, not only for each household, but for each individual within that household. It's easy, with intuitive ease of use to discover content across Sky and from our partners, No matter whether it's the shared experience of Kiwis coming together to watch key live sporting events, binging on on demand box sets of the latest premium TV shows or
catching up on back catalog favorite movies.
It's everywhere, allowing users to enjoy the same experience, not only on the big screen, but on personal devices, so they can watch how, where and when it suits. And importantly, it allows for fluid viewing between them all. And it just works, reliable and dependable, was our fastest and highest spec box yet by significant margin. We've chosen a hybrid box with a combination of both satellite and Internet technology to bring the best and high quality video and audio to every connected home in New Zealand. It's the center of Sky's new entertainment experience.
Delivering on this product proposition, we will introduce a truly personal experience with intelligent recommendations based on what you've watched, multiple profiles, so personalization really is personal, a voice enabled remote control for quick content discovery, the ability to integrate partner apps directly into our experience, a seamless experience between the box and Sky Go and more space for recordings than ever before, all on a 4 ks HDR ready box. When we showed the concept for the new box experience and tested it further with New Zealanders, we had a really positive response. This gave us the confidence and the ability to drive revenue growth to
Sky.
We saw wide appeal across 4 segments of our Sky base from native streamers through to connected nesters. Many of our Heartland champions are very happy with their current Sky box, and they can keep the experience that they love and won't be forced to swap. 85% of existing customers we tested love the new capabilities and features the box would bring, particularly the increased recording space and the step change improvement for discovering Sky's content. And 50% said this will make them more likely to stay with Sky. Significantly, 77% of non Sky customers open to Sky found the concept appealing with the new all in one experience with integrated apps, improved on demand experience and accessible across personal devices.
Our initial launch will primarily target segments who will benefit the most from the upgraded experience, the aspiring families and connected nesters. Recalling the 600,000 Kiwi households open to Sky that Maria spoke about at the top of our presentation, we will also be targeting these 2 segments for acquisition. In determining our partner choices, we looked across the globe to find a solution that we could take that enables speed to market that could be integrated into our existing systems that was proven in market and that could support our customer needs and business needs, including an acceptable cost profile. We also looked at the possibility to partner with other pay TV operators who are aligned to our own business model. Having gone through that decisioning process, we've selected Google's Android TV operator tier as the operating system for the new box.
Android TV is the largest global TV operating system with over 160 partners launched since 2016 and 60 more in development. It's already used by 100,000,000 customers globally every month. Google's Play Store with 3rd party apps also comes built into the box, making it easy for customers to select and add their favorite apps to the Sky experience. Our voice enabled remote control also comes with Google Assistant built in, allowing for quick discovery of content. Android TV ultimately gives Sky speed to market.
The operating system is already built. And Sky will benefit from Google's ongoing investment in its development roadmap with regular Android TV updates. We already have a significant portion of the development in place to deliver the new box experience, including the existing satellite infrastructure and our on demand metadata analytics and customer management systems. And importantly, we build on the investments we have made over the past 2 years on our digital platform and cloud technology. These investments have demonstrated that we can successfully build a single technology stack to support most of our core operations and put it on top of this stack, a digital front end for our customers.
This represents just the beginning of Sky's digital future. Now the new hybrid box will mostly be a digital platform driven device that uses satellite to access the TV channels as well as the local recording technology. We've already developed and proven a large portion of the required user experience for the new box through the delivery of Sky Go for web browsers, mobiles and tablets. The new Skybox is essentially just a new device we will add, but designed and curated for the big screen and a remote control. We've designed and built a TV and on demand experience, including the TV guide, content discovery, continue watching bookmarks and watch lists.
This means we already have the foundation for a seamless, connected experience needed between the box and customers' personal devices. Now to finish off, I want to cover off some key metrics we're targeting for the new Skybox experience. We're targeting a mid-twenty 22 launch to customers. As I mentioned, we saw wide appeal across our existing base, but we'll be targeting those segments who will really benefit from the new box experience, aspiring families and connected nesters. We're targeting 150,000 to 200,000 boxes in customer homes by the end of year 3, and we're anticipating a split of roughly eighty-twenty between existing customer upgrades and new customers.
And finally, we'll be funding this initiative within our existing CapEx envelope. So thank you for listening, everyone. We're now going to move on to questions.
First, we'll go to Ari Decker from Jarden. Your line is open.
Hi, again. Firstly, just on the streaming segment and congratulations on the success you're having with Neon. Question I had was in terms of the market sizing, which sort of shows 400,000 customers open to Neon Sky Sport now.
Your 3 year target at
the low end of the range, 10% per annum, that's reasonably soft against that sort of target size. So just want to understand what sort of factors prevent you from being more ambitious in terms of converting more of that over to what is obviously 2 products with very good output on them.
Thanks, Ari. Nice to hear from you again. Yes, I'm always tempted to being more ambitious as a CEO, but I have very strong finance support. But maybe Ricky can just give you a little bit more insight into our thinking there.
Yes. I think 1st and foremost, it is quite a conservative forecast. 10% to 15% annual growth is something that we think we can comfortably achieve. The figures there do reflect some increased marketplace competition, which we certainly see manifesting over the next few years. But again, we've got a rusted on base that continues to mature.
We've got strong content quality that we back. So there is opportunity to outperform. But 10%, 15% we think we can comfortably
achieve. Yes. And then just in terms of Sky Sport now, obviously, the incentives for you to stimulate greater take up there are very high because it's your most expensive and it's largely fixed cost content. What can you do and what are some of the considerations for sort of stimulating greater takeout there? Are there things that you can do different to the current sort of approach in terms of $40 per month bundle?
Yes. I think there's certainly more and more options we can do there. From a pricing and packaging perspective, it's certainly something we continue to evaluate in terms of
all the options
to provide value for customers. We've seen flexibility around day passes and tournament passes working really well in that space. It's something we'll continue to examine. From a digital marketing perspective, again, there are things that we can do to be better and be sharper there that can continue to drive uplift there. For us, it has been sort of open to those near term opportunities at the moment.
Yes. And I also think, Ari, it's about thinking about the other partnership options there in terms of distributing and defining the right approach.
Sorry,
I hope you got the Ari. I was talking about the partnership options for distribution as well.
No, that's all helpful. Thank you. Just on the new set top box, I guess you referenced there the appeal of it to a very large proportion of both existing customers and non customers. I guess in that context, why what's behind sort of targeting up to 200,000 rollout over the 1st 2 years? Is the objective to manage for positive free cash flow?
And then just a couple of follow-up side questions on that. Like would you be charging a premium to access that set top box to manage the demand? Maybe those few first.
Thanks, Ari. Well, again, we're sort of we're putting these targets in and we're managing the process. In terms of how we'd actually go to market and whether we're going to charge for the box, We've got time to work that out. Early indications from the research that we secured said there are a number of customers who would be prepared to pay. And Bridge, you may want to give a little bit more context on some of the feedback we've had and the approach we're taking.
Yes, that's right. Thanks, Sophie. Yes, so we are very much focusing on our existing customers as our priority. As you already mentioned and called out, we had a wide appeal. We are focusing on the 2 segments, aspiring families and connected nesters.
And as I mentioned, an 80%, 20% split. Sophie's right. We're still we're not committing just at the moment on the pricing of the box and how we will take that into market. We have a bit more research to do there and more talking to our customers to finalize that.
And then just final question, I'll just
New Gary.
I mean, if you have greater take up and demand for it, and obviously, it looks like a very compelling proposition. And if it's successful, you're not going to want to get out of the way of it, I guess. But like do you have access in your bank facilities to fund that if you decide to push it harder? And how much what is the approximate cost of each device?
Thanks, Ari. It's good that you picked up on that question again. Yes, we've got as you've seen from our balance sheet, we're in a very strong capital position. So like you, I'm pretty excited about this opportunity and seeing what it will do in the market. And if there's that take up, then of course, we're going to go for it.
But this is all part of what we need to go back to the board on. They've approved the approach. They've approved the upfront CapEx cost, which they're very comfortable with. And this will be what we're working through in the coming period up to launch. But certainly, if the customer demand is there, we'll be meeting it.
Sure. And just the cost of the box?
We're not going to be talking about that at the moment, Ari, but appreciate why you're asking the question, and we'll be able to come back in time once we're ready to go to market with the plan.
Sure. I'll hand over to someone else. Thank you.
Thanks, Ari. Thank you.
And next we'll go to Brian Hahn from Morningstar. Your line is open.
Hi. A question for Corey. I understand Sky is removing big discounts, but just to assume that the recent churn improvement is partly because of COVID, Would Sky be willing to introduce heavy discounts and incentives to retain those customers who may want to quit their boxes when Lars goes back to normal?
Normal?
We need to understand, 1st and foremost, why our customers want to stay. Our customers want to stay for our great content. And we need to make sure that, that is what we deliver to them. Now in terms of offering customers discounts, yes, there are ways and means for us to offer discounts to these customers. We value our customers.
And as I mentioned briefly in the presentation that we do see returning customers as well once they've disconnected, they come back for the content and the experience that hopefully we offer to our customers. So yes, I think to answer your question, it's got to go both ways. We've got to offer upfront value with what we give our subscribers. And as a last resort, yes, we will offer some discounts as well. Does that answer the question?
That's great. Thanks, Corey. And one follow-up question for, I think it was Ricky. How challenging do you think, Ricky, it will be to raise prices for Sky's streaming services?
Yes. Maybe I can start by reflecting on the recent price rise that we introduced. So we announced the price rise in April, executed in May. We had some churn when we initially announced that, but that churn has now rolled off and we're back towards a business that looks similar to what we had just with high ARPU for a lot of the base. So we're really happy with how that price rise has landed.
I think being able to continue to do that will be dependent on a couple of factors. I think that where the market goes, we've seen over the last few years that the ARPU for ESOD services internationally has trended up. So we'll obviously keep an eye on what the market does and use it to dictate where we go. But also what our content proposition looks like relative to those competitors. We've got a really strong content offering at the moment that supports a high price.
We anticipate continuing that. And if so, that will give us the power that we need to continue to rise to price.
That's great. We've been perhaps a final quick question for Daniel. What percentage of Sky customers do you think currently subscribes to Vocus broadband?
Well, I'd say that we obviously partner quite closely with Focus. We I think primarily from a brand perspective, there's a bigger part of the market to chase where there is opportunity. As I sort of talked before, customers are experiencing customer experience issues on fixed wireless. So I'd be looking more towards that part of the market where we can actually improve customer experience.
Right. But the percentage of your current Sky customers and the sort of equivalent to what Vocus' current market share is?
I really sort of I wouldn't want to share too much on those sorts of insights. But relative market share, Vodafone and Spark are the biggest in the market, and that translates through to our base as well.
And if I can just pick it up there, Brian, I think it's all about I was just saying it's all about value for our customers. That's what we're really focused on. As Dan was saying, we're being very targeted about that. So this is that customer first as opposed to competitor first. So that's our real focus.
Thanks, Jose. Thanks, Andy.
Next we'll go to Phil Campbell from UBS. Your line is open.
Yes. Good morning, everyone. Just a couple
of questions around the box. Is it possible to kind of
give us some information about who's going to be manufacturing it and where it'll be manufactured and kind of the size of the box? Is it going
to be similar to the existing Skybox? And
I suppose the other question I have was, obviously, we're going for a hybrid box. Just be interested in your kind of decision making process around that versus you could have gone for just the kind of digital only box. And then I suppose in terms of the decision with the box, obviously, we're looking at other kind of manufacturers or white label options. So you're just interested in kind of what tilts you towards the Google option. And then also just checking, I think Google TV does have a universal search.
So I'd be interested to see whether you will have universal search even across Netflix with this new hybrid box.
Great. So lots of questions unpacked there. I'm going to hand to Bridget, and then I'm going to try and pick up and recall. You might have to remind us a
little bit. But, Bridget, maybe you can pick up on that.
Yes, enough. Sorry about that.
Pick up the call, but you recall. So in terms of the box manufacturers, we are in final stages of discussions with them at the moment. So we I don't believe we're going to reveal those until we conclude. But we're working with global with partners who we have worked with previously as well as those who have delivered on initiatives similar to this in the global market space. I believe you also mentioned, we look at the white label solution.
We did Sophie really gave us a task to look globally at all options that would be there for Sky. What we did and we found them through the investigation is that partnering with someone like another operator actually meant that the initiative would be riskier, costlier, was absolutely no quicker to market. Most importantly, it didn't actually meet the needs of our customers. We would take it off the shelf and we couldn't really configure. We didn't own a road map, so that's why we're very confident in the approach that we have today.
Universal cert? Universal cert, yes. Yes. One of the benefits of partnering with Google and with Android is the voice remote control that will come with the box that comes built in with Google voice assistant. And when you do use the voice remote control, don't get too technical, but when there's a specific technical integration knowledge graph, Google Knowledge Graph, all the results will from other streaming apps will be displayed.
Sky content will be prioritized for our customers. We know that, that was one of the key insights is that customers really want to have access and see the breadth of our content alongside our partners' content. I think there was another question in there, though. So please, if you can repeat it.
The other question was just the decision to go for a hybrid box as opposed to digital only because I'm assuming that would add a bit of cost
to the box.
Yes. Yes, that's right. I mean, we really did some deep insights did some deep research together the insights from our customers and also non customers who were open to Sky. And what we know is that to deliver an engaging product proposition to all of New Zealand, we have to be able to deliver satellite technology as well as streaming technology on this box. Our customers are very clear that the quality that we deliver to them now via the satellite is what they continue to need and continue to rely on.
Great. That's very useful. I just had a quick one on broadband, if you had a second, was just looking at the targets for the next 3 years, the attachment rate, it's a bit lower than what I was forecasting. And just for the Disney plus deal, I thought maybe you could get slightly higher attachment rates there. I'd just be interested to see so far, are you mainly getting customers from the existing base?
And kind of if so, yes, I was just a little bit surprised by the attachment rate being quite that low, but I'd be interested in any comments.
So Phil, I'm going to go first. Yes, again, I think that we're just being maybe being a little bit conservative on the attachment rates, but I'm going to hand over to Dan to talk a little bit about, of course, the focus and what we're excited about.
Yes. So I think with that ambition, that would put us in a good position in the market long term. But our focus right now is delivering value to our existing customers. So yes, we are primarily talking to our customers. Our focus also on quality.
Quality is delivering great customer experience results for us, and that delivers a sustainable model over time. I think it's also important, I called out, that the broadband decision is not an immediate decision for a lot of people. It takes time. There's a household decision usually involved as well. So early signs are positive.
We're seeing growth week on week. Advertising is resonating and in fact compared to some well established campaigns in market. And yes, so we're expecting that we'll be able to grow to those numbers and hopefully beyond.
Great. Thanks.
And we have no further questions in the queue.
Excellent. Thank you. And now over to Michael.
Kia ora and hello. My name is Michael Frangston, Sky's Chief People and Operations Officer. I'm going to spend a few minutes bringing to life what's behind the scenes transforming Sky to assure the delivery of the strategy, the commitments and the program of work that you've heard spoken about today. I want to talk specifically about 3 things. The first is our new operating model and the ways in which it enables a relentless obsession with our customers by teams throughout the business.
The second is the work we have underway to transform culture and drive engagement as we grow innovation, lift productivity and execute at pace. And the third is the priority initiatives we have underway for the coming year and beyond to right shape, right skill and right focus, Sky, for the future. A little more than 8 weeks ago, we announced some changes to the leadership approach here at Sky. Those changes included a smaller executive and a flatter structure in which leaders throughout our business, the very leaders you've heard from this morning, are set free and empowered to deliver on customer outcomes, collaborate with each other in new and different ways and obsess every day about how to offer Sky customers the best sports and entertainment in ways that work for them. And as you've heard from a number of the team this morning, we're crystal clear that what matters most is our customers.
So clear, in fact, that we're extending this focus to the ways we're organized and structured as a business. It's no coincidence that our customers are reflected front and center stage in our new operating model. And we're committed to ensuring that every team at Sky is empowered to share the responsibility for understanding and delivering on customer expectations and executing on our strategy. You heard earlier from Ricky about the growth of our Neon business. Ricky talked about startup mentality and a small but perfectly formed high trust team supported by great data and best of breed tech.
We think there's a huge opportunity to replicate Neon's approach more broadly across Sky. And so the operating model we're bringing to life is about ensuring that our customer teams, whether that's Skybox or Sky Sport Now, whether broadband, Sky Business, rugby pass or ad sales, are all empowered and enabled with what they need to innovate and drive the delivery of exceptional experiences for their customers. And importantly, we're also driving a direct line of sight to customer priorities for our enabling teams, those crew that work across key support functions to enable us to deliver things that matter most to our customers at speed. We're not only changing how we're organized, but we're changing how we work. As you've heard from the team this morning, our success lies in our ability to be nimble, quick on our feet and relentlessly focused on execution.
And so we're becoming a lean and adaptive business. In simple terms, that's about delivering value rapidly and frequently, building the muscles we need to deliver at pace. We're also leveraging automation and digitization to drive down our operating costs and increase the productivity of our people. We're really clear that to put our customers front and center stage, we have to put our own people at the heart of everything we do because we know that what goes on, on the inside shows up on the outside. Engagement matters.
It's about the commitment of our people to our strategy and goals. It's about discretionary effort. It's about productivity. Our new people strategy was launched in December, and it was informed by almost 80% of our crew who participated in a baseline engagement survey. The strategy sets out our key priorities for leadership, culture and the ways we develop and enable our people to align to our strategy.
After just 3 months of targeted interventions set out in that strategy, we've moved the dial on leadership by 11 percentage points, and we began making inroads about the capability uplift of our people. You'll also note that we moved the dial on culture up 6 percentage points in just 3 months. That result was entirely attributable to our focus on diversity and inclusion. And why is that important? Well, you heard earlier about New Zealand's changing demographic and the enormous opportunity we have to appeal to a range of audiences that have not previously featured strongly in our customer base.
But to secure that opportunity, we need to become an organization that better reflects those customers and communities that we want to serve into the future. Diversity and inclusion isn't just the right thing to do. It makes great business sense. Getting the bedrock right is about right scaling, right skilling and right focusing our business for the future. And building a diverse and inclusive culture is just one of the priorities set out in our people strategy.
Our program of work is extensive, and each area of focus represents a critical component of that bedrock we're building to secure our future. And we're very clear that what got us here won't get us there. We're growing a new generation of leaders, a number of whom you've met through this presentation. We're asking those leaders to work in new and different ways, and you've seen evidence of their successes this morning. We're recognizing and solving for capability gaps with an emphasis on what we need to deliver today and what we need to capitalize on the opportunities of tomorrow.
And that means we're recruiting and growing new skills, for example, in data science and customer insight and experience and in human centered design. And we're changing up the way the organization thinks and works, in some cases, breaking the mindsets and habits of a generation and redefining what pace, execution and excellence look like. What all of this means, you'll see, is a business that delivers on what it says it will do. A business with customers and customer value at the heart of everything it does. A business that's attracting and growing 1st rate talent and better reflecting the customers we want to serve, and a business that's profitable, sustainable and fit for the future.
Kia ora and moraine, everyone.
My name is Andrew Hurst, and I'm the interim CFO here at Sky. You've heard the team talk about the strategic priorities and initiatives the Sky crew are working on. I will now take you through what all that means in terms of our key financial performance metrics, essentially translating what you've heard into providing some direction on our financial outlook over the next 2 or 3 years. I will start with our revenue profile and trajectory, then move on to our cost base and CapEx investments. And finally, I will show you how that flows through to our key financial metrics, such as revenue, EBITDA, CapEx and free cash flow.
So turning firstly to revenue. As the team has highlighted, one of the key themes over the next 2 or 3 years is our plan to stabilize our core Skybox revenues as well as continuing to deliver the strong revenue growth we are achieving with our streaming services. At the same time, we are also targeting substantial revenue growth from newer services such as rugby pass and broadband. Our ambition is to transition the Skybox revenue trajectory from the slow, steady decline that we've seen over recent years into being stabilized over the next few years. This will be enabled by the various customer focused initiatives you've heard about today, including enhanced customer experiences, focusing on cost effective retention strategies and importantly, delivering a new set top box experience, which Pritik demonstrated earlier.
As you heard from Corey, we've already seen some positive signs that the rate of decline for Sky box subscribers and revenue has slowed in recent times and is moving towards stabilizing. This is especially pleasing as in reality, we're only just tooling up with the new set top box still to come, giving us confidence that we've just scratched the surface on our ability to stabilize the base. On the streaming front, as Ricky has already covered, our Neon and Sky Foot Now offerings are going really well with subscriber numbers growing month after month. We expect to see the subscriber growth continue as well as revenue growth for rugby pass as its audience and network business accelerates. Having achieved revenue growth of 34% per annum over the last 3 years, we expect the rate of streaming growth to be a bit more modest over the next 3 years, but still at a very healthy 15% to 25% per annum.
For other core revenues, made up primarily of commercial and advertising, we expect these to continue to recover to pre COVID levels with the opportunity of growth in the commercial space with our new tiered pricing model and also broadening out the customer base across all sectors. In terms of our newest services, such as Rugby Pass and Sky Broadband, we aim to have these make up approximately 10% to 15% of total revenue by FY 'twenty four. As Dan outlined, to achieve this on Sky Broadband, we are targeting an 8% to 13% attachment rate on our Skybox customers, which will also have a positive impact on overall ARPU. In total, we are aiming to grow revenue by at least $75,000,000 to $100,000,000 per annum by FY 'twenty four, most of which will come from Sky Broadband, but also continued growth in streaming and MoviePass, as well as stabilizing Skybox and returning commercial and advertising to pre COVID levels. What that also means is that we'll continue to diversify our revenues away from where we were 2 or 3 years ago.
And by FY 'twenty four, we aim to have 10% to 15% of our total revenue from newer products. And when you add in the continued growth in streaming, this percentage of total revenue increases to 25% to 30%. This chart also demonstrates our ability to grow new revenue streams with the successful ramp up of our streaming services over the last 2 or 3 years in response to changing market demand. This gives us even more confidence in our ability to execute on our Sky Broadband strategy. It's also worth noting that one of the factors behind the more modest growth outlook for streaming, being the expectation that there may be more direct to consumer entrants, the summary will actually help drive growth for Sky Broadband, especially as our offering is focused on delivering a high quality user experience around content consumption.
Now let's look at our costs. We broadly categorize our costs into programming, which includes both rights and production, and non programming, covering areas such as broadcast and infrastructure and subscriber related costs, which in turn include sales and marketing and subscriber management. Below the EBITDA line, our depreciation and amortization costs now include right of use assets under IFRS 16, most of which relates to our Optus satellite lease. As Johnny covered earlier, we've successfully locked in key content that matters to our customers with a number of new strategic renewals and new deals, including NRL, Sanzar, ESPN, Universal and Viacom. What this has meant is that our cost base has stepped up in the second half of FY 'twenty one, primarily due to the impact of the new Rugby deal, but also because in the first half of FY 'twenty one, we achieved some one off savings in sports rights and production costs due to COVID-nineteen.
We've also seen a step up in our sports production costs following the sale of OSB in March this year. As we move forward, Johnny and the team are very alive to the opportunities that exist for co exclusivity and partnerships on both renewals and new rights deals. Our recent deal with Discovery is evidence of this, and we expect to achieve significant savings on future deals as a result. Coupled with that, the content team continued to take a very disciplined, data driven approach to renewal and acquisition decisions and will only pursue deals where it makes commercial or strategic sense to do so. And in some cases, that means being prepared to let deals go.
On the non programming cost side, we will see some increases in subscriber related costs over the next few years as we spend to drive our revenue growth in Skybox and streaming in particular. Putting aside those increases though, we are targeting further operating cost savings of $10,000,000 to $15,000,000 per annum by FY 'twenty four, which is on top of the net $15,000,000 of annualized savings we've already achieved in the last 2 years as a result of a number of restructuring activities and structural changes
to the business.
Finally, it's worth noting that the majority of our broadband costs are variable in nature, so we'll only scale up as Sky Broadband grows. Below the EBITDA line, our D and A costs will continue to reduce as we move to a lighter capital model, and we expect this to mean a $20,000,000 to $25,000,000 per annum reduction by FY 'twenty four, which includes low Optus lease costs from December 2021 as a result of our new deal. As Michael touched on earlier, we are transitioning the business to a more lean and dynamic operating model, which will help drive the $10,000,000 to $15,000,000 of operating cost savings as well as focusing on the right value adding activities. This chart shows the proportion of our future cost base that relates to our newer products, such as Sky Broadband, which, as I mentioned earlier, is largely variable in nature. Our continued move to a lighter capital model with greater emphasis on investment in software and cloud solutions will also help drive these cost savings as well as reducing our D and A costs.
We expect this new lean operating model will enable us to manage with higher cost of content costs for the next few years, which will see programming costs as a percentage of revenue peak before settling back down to around 45% to 50% as our revenues grow and we target co exclusivity and partnership benefits on new deals. In terms of our capital expenditure, over the last few years, we've been focusing our CapEx spend on enhancing our broadcast capabilities and streaming platforms, on moving the business towards a more software and cloud driven approach and on other initiatives to automate and digitize the business. We're now very well placed to pivot our CapEx spend more towards growth and initiatives that will enhance and drive revenue and subscriber growth, such as the new set top box and customer equipment for Sky Broadband. We aim to have approximately 50% to 60% of our CapEx spend focused on growth initiatives, with the remainder being on rounding out the automation and digitization of Sky as well as spending that simply keeps the lights on. It's also worth reminding you that we exited OSB in March this year, choosing to outsource and partner with NEP, which is one of the really important benefits to Sky being the fact that we avoided about $50,000,000 in CapEx that was needed on our outside broadcast fleet.
We continue to work to our CapEx target of
7% to 9% of revenue, and we're confident that we can make all of the investments required to achieve our targeted revenue growth within that envelope, although I expect that over the next couple of years, we will likely be towards the top of that range as we invest in the new set top box, for example. So to summarize all of that into our outlook for Sky's key financial metrics. On revenue, I'm pleased to say that you can expect to see a return to growth over the next few years with significant revenue growth targeted from newer businesses. We plan to stabilize our core Skybox revenues to continue to deliver the strong revenue growth we're achieving in our streaming offerings and have 10% to 15% of our total revenues from newer services such as rugby pass and broadband. On the cost side, for the next
few years, we will be in
a period of new normal on programming costs following the securing of key strategic rights deals. And while this does mean our programming costs are largely committed, it won't stop us from targeting savings from co exclusivity and partnerships on both renewals and new deals. In addition, as we move to a leaner and more dynamic operating model, with a greater degree of automation and digitization, we are targeting another $10,000,000 to $15,000,000 per annum of operating cost savings by 2024. What that means for EBITDA is that while we expect to finish FY 'twenty one at the upper end of our guidance range, if not slightly above, we will see a reset of sorts in FY 'twenty two due to the new normal on programming cost structure as well as the time it will take us to stabilize our Skybox revenues as we work through the startup phase for Sky Broadband. On that point, though, it's worth remembering that FY 'twenty one has been a somewhat unusual year.
And while revenue was impacted by COVID-nineteen, we were pleased to achieve significant one off savings in content and production costs to more than offset this impact. We also have other material income in FY 'twenty one, including a gain on sale from a successful sale of OSB and the favorable settlement of a contingent consideration obligation for Rugby Pass. The absence of these one off benefits in FY 'twenty two is therefore also a factor contributing to the EBITDA reset between FY 'twenty one and FY 'twenty two. We expect to be at the upper end of our 7% to 9% target CapEx envelope over the next few years as we invest in key revenue growth initiatives, such as the new set top box, having now largely completed a period of reinvestment in our platforms and broadcast capabilities. On cash flows, we expect to maintain positive free cash flow generation over the next 2 to 3 years, albeit at relatively low levels we absorb the new normal program and cost structure, we return revenue to growth and reinvest in the long term.
Capital management options, including dividends, will be considered by the board in the context of our strong balance sheet and available free cash flows and will be influenced by the need to return revenues to sustain growth to achieve further operating cost savings and invest for the long term growth. Finally, a quick update on guidance for FY 'twenty one. We are not making any changes to the guidance issued on the 3rd February, but we do expect to be at the upper end, if not slightly above, the guidance ranges provided on EBITDA and NPAT. That's all I'm proposing to cover in the full part of the presentation, but there will certainly be a chance for you to ask any questions you have shortly. In the meantime, tena koutou, thank you for listening, over to Sophie to wrap things up.
Thanks very much, Andrew. Andrew and the other presenters you've heard from today have shared a number of financial and operational targets that together give you a clear picture on where we're heading and what success looks like. I trust that as well as the information on the page, you have received a strong sense of a Sky team that is passionate, talented and committed to delivering on our strategy. As I said in my opening remarks, we are operating in an industry that is going through significant change and consolidation, both globally and domestically. My goal today was to clearly articulate how we are positioning Sky for success and to give you, our investors, confidence in Sky's future direction.
We have a strong position in the New Zealand market, a revitalized strategy and a stabilized capital structure. I doubt it will surprise you to hear that the Board and I do not believe the current share price correctly reflects the underlying value of the company. And it is in that context that I note that over the course of the year, Sky has received a number of unsolicited approaches around potential transactions, all of which have been highly conditional and incomplete. Naturally, we're open to strategic partnerships that do create shareholder value, and as such, we've appointed Jarden to review any such approaches. Now of course, there is no guarantee that any approach will lead to a formal proposal or in fact to any transaction, but we are open to opportunities for a partnership that will secure further value uplift for our shareholders.
And in the meantime, my leadership team and I remain resolutely focused on delivering on the strategy we've outlined today and delivering more value back to our customers, our partners and the communities in which we serve. If we get that right, along with a focus on execution and operational efficiency, we will deliver more value to you, our owners. And with that, I'll invite Philip Bowman and Andrew Hirsch to join me, and we're happy to take any questions you may have.
1st, we'll go to Ari Decker from Chardan. Your line is open.
Good morning again. Look, thanks for the presentation and in particular, thanks for putting targets out there. I understand that it's not at all easy. Just in terms of first question on the financials, I take your comments around a reset of sorts in EBITDA in FY 'twenty two. And I understand that our job, I guess, is to sort of take a view rightly or wrongly on revenue and when that stabilizes and what it looks like.
But on the rebasing of programming costs, which is clearly a factor through this period, can you please give a bit more specific and clearer guidance on what you have baked in for programming costs in FY 'twenty two on the deals that you have now completed?
Thanks, Ari. Nice to hear you. You know what, we're actually focused on the Investor Day and the 3 year targets. Obviously, at the full year, we're looking to give clearer guidance to the market and to you, including in the key metric of EBITDA. Andrew, any other thoughts for now on that one for Ari?
Yes, sure. I think before I answer the question about 'twenty two, bear in mind that FY 'twenty one, we did make some savings as a result of COVID. So and we've obviously talked about those at the interim, and I covered that in the presentation. So I guess we wouldn't expect to see sort of those repeat themselves in FY 'twenty two. Clearly, from the 1st January, we had a step up in our rugby deal that impacts us on the second half of this year.
I guess the other thing to bear in mind that in this FY 'twenty two year, we've also got the Olympics playing out as well. So there's sort of a couple of things that are trying to come through in the numbers for FY 'twenty two in the preliminary side.
Sure. Okay. Just in terms of the revenue growth target, I guess I just want to sort of understand and make sure I'm sort of interpreting this correctly. Are you talking about and obviously, you don't know where revenue rebases to at this point, you're looking to stabilize it in the first instance. But are you suggesting that your goal is to get incremental year on year revenue growth at some point prior to FY 'twenty four of $75,000,000 to $100,000,000 per annum annum and for that to repeat itself over a number of years.
Is that what you're saying there?
Yes. So in terms of the goal, yes, I think we're in terms of FY 'twenty one, we'll end up sort of mid range on our guidance range. I think what we're saying by FY 'twenty four, we wanted to add is about $75,000,000 to $100,000,000 of revenue to that number. So a lot of that will come from Sky Broadband. Obviously, we have great expectations for that business.
But also, between now and then, we are seeing a return on some of our the pre COVID levels on our commercial and advertising revenue, continued growth in streaming. Those things will all contribute to it. But I guess the bulk of that, 75 to 100 we would expect to come from Sky Broadband. But yes, by 2024, basically spanning about that number.
Yes. So targeting around the €800,000,000 by FY 'twenty four if that's revenue?
Yes.
Okay. That's helpful. And then I mean, I guess, the CapEx guidance that you provided and you provided in a range of 7% to 9%. I mean, could you talk either to what the absolute dollar amount is for your CapEx envelope over this next period for the investment that you want to make, given that obviously there is still some variability in the view that you can take on revenue? Or alternatively, are you suggesting that notwithstanding what you want to do, there's a reasonable amount of the CapEx that's variable?
Yes. I think firstly, again, to figure out FY 'twenty one, we'll finish kind of mid range in our guidance for this year, which will be sort of towards the lower end of that 7% to 9%. I think I signaled in my presentation that over the next couple of years, we'll be at the top end of that as we sort of invest in the Box in particular. Also bear in mind that over the last 2 or 3 years, there's been a lot of spend on capability, our broadcast capability and platforms and whatnot. So that's now behind us.
We've actually got room in the envelope to now focus on growth initiatives. Obviously, the box being the biggest one of those. So I don't want to necessarily talk about absolute, but I suppose if you do the math on the revenue and apply the guidance range, you can get yourself in the right sort of zone for the CapEx numbers. And obviously, when we do FY 'twenty two guidance, which I imagine we'll do as we announce our year end result, we can talk about CapEx guidance for next year.
Yes. Okay. No, that is sort of, I guess, helpful for trying to calibrate a number. But obviously, as you've acknowledged through the presentation, the competitive landscape is still quite strong. If you don't if your revenue proves to be disappointing against your expectations now, will you adjust your CapEx spend down?
Is there CapEx in there that you sort of see as kind of that you can basically push out or not Or in that case, would you end up, given the importance of some of these investments you're looking to make, sort of spend through it and perhaps we end up being with above the top end of the range?
Yes. So it's obviously at its nature, some of the CapEx is fixed and some of it's not. So the start up piece and the investment in the new boxes coming and that will be invested. But I think as we grow the number of boxes on the Skybox side and as we grow our broadband business, that CapEx is, to some extent, variable. So the number of units that we'll buy for mesh units and whatnot for broadband as well as for the box rollout will be somewhat variable based on demand.
So there is some element of flexibility to that, yes.
Yes. And then just a couple of very quick last ones. Just any update on what you sort of see for the future for Prime. Freeware has been important to a couple of things you've done in rights recently, but you've also sort of shown your ability to work with TV3 and you've got a good partnership with Discovery. And then also just in terms of any update in terms of how you're looking at the property portfolio, release of capital from that and just premises more generally.
Right, Ari, thank you. Talking about prime, well, I know that we talked about that a little bit earlier this year when we had we sat together. The team has worked really hard to bring the cost down in terms of time. And actually, we do still see it as a very vibrant and vital part of our offering. That said, we also like to partner, as we have done with TV3 of late with the State of Origin in Wimbledon.
So the advertising revenues are returning. We're very positive at this stage. So we're excited about that. And obviously, Prime is vital to those advertising revenues. So that's a we're still working very hard, and the team has done a great job, which I'm grateful for in terms of bringing those costs down, but still increasing the advertising revenues there.
On the property front, yes, we're just getting to the end of the sales process, and we're now sitting with Colliers just to make sure we're going to get the right shareholder value return on the property portfolio we have. So no further update at this stage, Ari.
Thank you, and thanks for all presentations this morning.
Thanks, Harry.
We'll take our next caller, Brian Hahn from Morningstar. Your line is open.
Certainly, and Bill, I can only imagine the complexity that
you had to deal with
to come up with a long term strategy. But when it comes to strategic priority, do you think stabilizing satellite revenue while growing your streaming revenue at the rate you're targeting is sustainable longer term?
Thanks, Brian. Yes, I do think it is. We've obviously unveiled our Skybox plan. And as I've said, we've much loved in lots and lots of New Zealand homes already, and we see a great opportunity for not only stabilizing but growing that revenue base. And those are obviously higher ARPU customers who pay for the power of the bundle.
And absolutely, that's the core of our content offering that we then get the benefit of being able to share across both Sky Sport now and Neon to those customers who want to consume that way in a different way to the Skybox space. So yes, my answer is a resolute yes to that. We do think that, that gives us the ability to have these partnerships going forward, talking about co exclusivity, and that's because of the box space that we have and our ability to deliver to all of New Zealand, which is a core strategic strength of Sky. Philip, not sure if you've got more to add from your side?
Nothing really further to add to that, Sophie.
Great. Thank you. Hopefully, that helps, Brian.
No, that does help, Sophie. And while you're there, in the broadband business, I know you were a pain to point out that it's there to serve your existing customer base and all that. So should we think of it as a business that will stand on its own as a profit center? Or do you think we should treat it as a complementary business to your current stream or even pay TV unit and work out the NPV of it as part of the whole?
Thanks, Brian. I'm going to start by saying at this stage, very much complementary and there to add value back to our customers. As Dan talked to, it's incredible value and great quality and service. And today, the NPS is very high with those customers that have it. And but as we talked about at the outset, it's a variable cost model.
And the Board was very clear that this had to deliver more value back to the bottom line. Andrew, I don't know if you want to add a little bit more color in terms of how we're framing it up?
No, I think that's the key thing. I think it is ancillary to our Skybox business. It's the key part of our platform there. But equally, it's going to wash its face because it's a variable cost model. We've set it up that way deliberately.
So on time, we expect it to be a
big part of our profitability.
Andrew, will you be splitting it out as a separate segment?
Decisions on the way we'll be treating it at year end haven't quite had this yet. That's a couple of days away, if I was honest. But we are looking at how we'll report it at our year end. We've looked at how others similar to ourselves have entered the market and reported their numbers. So I wouldn't be surprised if we didn't take a similar approach to them the way they report it.
So not sure about separate segment, but there probably will be some disclosure around it.
Because Andrew, you know that as soon as you start doing that, you know what we're going to do, right, at
I have a suspicion, yes.
Thanks, guys.
Thanks, Brian.
And our next caller is Phil Campbell from UBS. Your line is open. Billy, may you want to pick up the handset or unmute
the phone?
Just on mute. Just a question for Andrew about the free cash flow comment. It's coming about it's going
to be at low levels for
the next few years. Just wondering if you can give us some more color around kind of the magnitude of that. And then obviously, does that if we read into that, does it mean that any dividend decision would be kind of pushed out maybe in FY 'twenty three given the results in February to talk about reevaluating the dividend, I
think, at the end of this fiscal year?
Yes. Happy to address that. So I think we haven't obviously quantified by low means, but certainly a lot lower than it has been in FY 'twenty one. And I've sort of articulated the reasons for that in the presentation. And I guess as we get to FY 'twenty two guidance, there might be a bit more flavor around that we can give you when we get to nearing than we guide for next year, which will be sort of a good indicator, I suppose, of where we sit.
There'll be things that will impact it, like, for example, what we do or don't do with property. That type of thing will have an impact on free cash flow. I'll leave it to Philip perhaps to deal with the question on dividends. That's all right, Philip.
Fellow. I think in terms of dividend, we said very clearly at the time of the capital raise that we would reevaluate the situation early in 2022. The Board is mindful clearly of the desire of shareholders for dividends, and that process is ongoing. I think the comment that Andrew has made, it is clear that free cash flow is going to be reduced. There are other sources of cash within the business and certainly the sale of property is one of those.
But this is something the Board will continue to keep under review. But we need to be sure that we have the balance sheet that we need to compete in what is a very rapidly changing market as people have alluded to earlier in this session.
Great. Thank you.
And we have no further questions in the queue.
Great. Well, look, thank you, everyone, who's joined us today. I firmly believe in the strategy that we've set out, that we've got the talent to deliver on it. I firmly believe in the value that we can deliver to customers all across Aotearoa New Zealand, to our partners, which will in turn deliver that value back to you, our investors. I thank you for your trust in us.
And I just want to conclude by saying a huge thank you to all of our crew for all the hard work that you've done, the presenters today and the crew here with us in the studio. And on that note, we'll close out with our Investor Day video so you can take another look. Welcome to Sky.
Are the people ready? Turn roll, please. Yes, sir. Go, go, go. Sky delivers high-tech product platform.
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