Sky’s new CEO hasn’t yet been in his job for a year, but has already achieved more than his predecessor did in a decade. Duncan Greive sits down with Martin Stewart to find out whether it has changed Sky’s fate.
When Martin Stewart arrived at Sky a year ago this month, he found the corporate equivalent of a decaying mansion. A once mighty business, one of the most admired and valuable in the country, which had gradually fallen into disrepair. There was no one signal event that led it there – no catastrophic decision that haunted its halls. It was a slow, steady drip of a decline, every day getting a little older, creakier and more distant from its glory days. Until people started to wonder whether this giant would survive at all.
The cracks were everywhere. Its technology, once key to its success, was now widely derided. The extraordinary array of sports rights it once owned were starting to trickle away, most notably when Spark purchased the Rugby World Cup. That was indicative of a broader array of competitors, led by the global juggernaut Netflix, which took advantage of the power of broadband to distribute content far more cheaply than Sky could. Because of all this, Sky had morphed from a mass-market luxury product, a status symbol in every middle-class home, into something people were dying for an excuse to be rid of – a widely derided hate brand.
All this piled up, problem on problem, to weigh on the company’s share price – the ultimate public judgement of its prospects. This had plummeted in five years from more than $6 to less than $2 when Stewart took over, during a period when the rest of the NZX50 had doubled.
This was the grim reality of the business that Stewart, a lean, intense Englishman, had moved halfway around the world to run. “I think that the depth of the problem was deeper than I thought it would be,” he said, with impressive restraint, when we met in December last year. “Around brand reputation and relationships. Infrastructure, processes, systems, the on-air refresh, product development. The lack of investment in pretty much everything, really.”
He says that the critical issue was that it had allowed its once formidable technological lead – satellite distribution, the Sky box, then MySky – to disappear, just as overseas rivals were gathering strength. “About six or seven years ago when the business should’ve started another cycle of investment, it didn’t,” he says. “Then ultra-fast broadband rolled out. Then Netflix arrived in 2015. At that point the Sky team seems to have thought, ‘Oh, what do we do now? Oh, I tell you what we’ll do, we’ll do a merger’.”
That was with the local branch of Vodafone, with the idea being that its technology and customer base could be plugged into Sky’s vast rights stable and 800,000 subscribers of its own, to create a combined tech-utility-content juggernaut. Unfortunately for Sky, the Commerce Commission had other ideas, turning it down after strong objections led by Spark. Having hobbled a competitor, it promptly set up Spark Sport, effectively becoming the business whose creation it had vociferously opposed.
It left Sky adrift on a long rope of problems, with no clear plan to solve them. The company’s then-CEO, John Fellet, assessed the situation and eventually resigned, ending an extraordinary two-decade tenure – and leaving Sky in a serious hole. Rebuilding Sky is the kind of task that is exhausting to even contemplate, let alone build a plan to solve. Stewart, veteran of multiple pay TV operators, and not a stranger to turnarounds, threw himself into it with a frenetic energy.
For those who lack such drive, which is most people, that can be a lot to handle. Privately, a staff member talked of wanting to stagger the way that opportunities go across his desk, simply because he’s liable to grasp anything that aligns with his vision for the company, irrespective of whether the business has the capacity to process it. He works long hours, and praises other executives who do the same. He appears to be trying to shake off the torpor that had possessed Sky for much of the previous decade and replace it with swift, savage action.
Here is a necessarily non-exhaustive list of major moves he has made over the past year: launched a new sports streaming service; purchased a major international rugby streaming platform; abandoned a key technology project and initiated a number of new ones; taken naming rights sponsorship for Wellington’s stadium; launched a sports news channel; inked a fresh deal for rugby rights through 2025 and given up 5% of his company to NZ Rugby; purchased entertainment streaming platform Lightbox from erstwhile arch-rival Spark; bypassed his own Prime channel to collaborate on the 2020 Olympics with TVNZ.
Unsurprisingly, he has also overseen an executive bloodbath, with nearly all the most senior Fellet-era staff departing in the months after he arrived. Unsurprising because implicit in his extraordinary, action-packed year was a critique of what he sees as a very conservative culture dominating the company. Once he had cleared the desks of Fellet’s team, he decided he liked the look of the next generation, and the tools they still had to work with.
“I found a lot of very talented people, an amazing lineup of content deals and some very strong relationships on the entertainment side,” he says. “The relationships on the sports side took a while to fix. The goodwill was there – it just needed a show of the right sort of approach from Sky in order to get people back round the table.”
Stewart is uncommonly direct for the New Zealand corporate world. At one of his first press conferences after becoming CEO, he confidently assured potential competitors that they would “go broke” trying to outspend Sky on sport content. Yet his suggestion that there was goodwill toward Sky from sports bodies is, for the most part, wrong. Outside of rugby, which it largely funds, smaller sports bodies mostly loathed Sky. They often had to pay if they wanted their tournaments televised, and felt like they simply had to accept whatever crumbs of coverage fell from the table.
No longer. Sky is practically humping the legs of sports administrators now, trying to convince them that what was often perceived as a born-to-rule attitude from the previous administration is a distant memory. In part this is a belated response to the arrival of true competition, in the form of Spark Sport – which lost out on the rugby rights, but has a handy package now, highlighted by the Black Caps and domestic cricket from the 20/21 season. But it’s also because Stewart is making sport the hill on which Sky will thrive or die, based on his swift assessment that it should be the unambiguous core of its business proposition.
This is clear in the two biggest deals it made last year: the acquisition of international streaming platform and news site Rugby Pass and the retention of the rugby rights, which included the unorthodox equity component. The potential fusion of Rugby Pass’s global reach and streaming tech with NZ Rugby’s All Blacks brand is easily the brightest hope for a major new revenue line for Sky. When asked about the potential for various All Blacks-centric international streaming products, Stewart smiles. “Yes, is the short answer. All those sorts of things are possible.”
This could be a forerunner to other new businesses. It’s conceivable that, should it get its tech right, it could enter into revenue-sharing deals to sell, say, cycling or netball packages in collaboration with national bodies. There are dangers in too close an alliance – sports bodies tend to be very thin-skinned around criticism, and when business meets sports journalism the reporters often lose. This potential was never clearer than in the case of the Breakers, who had one of the most disaster-strewn off-court seasons in recent sporting history – all while wearing the Sky Sport logo across their chests, thanks to a new sponsorship deal. A seasoned sports industry figure complained that their ownership group got an easy ride on the new sports news channel. Stewart disputes that his reporters have soft-pedalled, but it’s clearly a plausible hazard.
One group that has had a worse relationship with Sky than sports bodies is the rest of the media. For years, Sky felt like an outsider, almost like it operated in a different business sector (one that actually made money). The indifference eventually became outright aggression – Sky spent the last few years suing Stuff, TVNZ and NZME, in a futile and obstinate effort to monetise short video highlights packages that were incorporated into news stories. Whatever the merits of the case that existed from an intellectual property perspective, it ignores the way the internet has developed, and created serious ill will in other media – particularly among sports reporters, a constituency of no small value to Sky.
When added to the perception among subscribers that it was too expensive, almost every major stakeholder of Sky was angry at it. “Relentlessly every week, almost every publication had negative stories about Sky,” says Stewart, calling it a “propaganda war”. It’s a situation he immediately set out to fix, taking a famously closed company and making it accessible, and inking deals with the likes of NZME, Newsroom and TVNZ.
Placating customers is a trickier task. While the cumulative weight of Sky’s deals gives it one of the world’s best content slates, the gap between a $70+ per month full-noise Sky subscription and $13 a month for Netflix is a chasm, and the clutter of its various digital products (SkyGo, Sky Sport Now, Neon, MySky) means that finding it in one place remains far trickier than it should. Especially compared to the gorgeous user experience and perfect-on-every-device accessibility of Netflix.
Despite some bright spots – Sky Sport Now, a new and simple pay-as-you-go digital sports product, is a positive sign – Sky’s ability to create decent online products remains at best an open question. Stewart acknowledges that it remains a known weakness.
“The simplification process is under way,” he says. “We started a digital product lab, basically, offsite from here [Mt Wellington]. We gathered all of the different teams who were operating in various parts of Sky, and consolidated them into a digital product development group.” The group includes some staff from Lightbox, the former-Spark startup purchased by Sky, which has had better technology almost from the start.
“[The new team] are operating in a very agile, very consumer-centric way,” says Stewart. “They drop new code and new features every two weeks, they are working on a range of different things that will allow us to simplify the offerings that we put in front of customers. I think it will take us ahead of where quite a bit of the competition is.”
He won’t announce anything just yet, but offered hints at what a simplified product range might look like. “Obviously we need to have some sort of an entertainment-only product. We need some sort of sport-only product, and then a ‘here’s everything’ product.”
For years, “here’s everything” was Sky’s business proposition. But after the success of Netflix, every major media company with a significant archive of film or television (and one that didn’t, in Apple) had a lightbulb moment, and began launching streaming platforms of their own. The looming battle between Disney+, Hulu Plus, Apple TV+ (sensing a theme here?), Peacock, HBO Max, Amazon Prime and Netflix is one of the biggest storylines in business right now. One with its own tagline: the streaming wars.
It’s resulted in most of those businesses doing two things: first, commissioning a lot of flashy original content. And second, letting deals they had with other companies to rent their content libraries lapse, so they had exclusive offerings of their own. The impact has been somewhat muted in New Zealand, with the Disney library Sky’s only major loss. But the billions being piped into the international sector is largely responsible for the perception that Sky (and the rest of the free-to-air market, for that matter) cannot compete against such a well-funded army. Stewart sees the future playing out differently.
“The first time that direct-to-consumer aspirations came up was in the year 2000, when the Premier League in the UK were going to set up their own channel and go direct. At the end of the day, receiving a cheque seemed like a better outcome than paying a cheque out in order to create things,” he says.
“I think a lot of what we see will inevitably tend towards a bundle again. What that bundle will look like and who will deliver it I think is to be decided. But, if you simply looked at all of the streaming services that are being put in front of a consumer, and if they bought all of them, then they will be paying a bigger bill than the bundle that they’re worried about today.”
That’s the same argument John Fellet made back in the day – that, far from being overpriced, Sky was actually great value for money, particularly for families with divergent interests. When Netflix was the only new streaming service, the gulf between the two prices was vast. But the combined cost of all the new services would easily match a Sky subscription. And while that would be an outstanding content array, it would also be relatively narrow, lacking much in the way of sport or news.
Stewart is betting that consumers will realise this and in time many will remember why they loved the bundle. Similarly, content companies will remember why they loved a regular hassle-free cheque. Especially in a small, isolated market.
“If you look at any of the companies that are trying to go direct – maybe the economics might be different in different countries, although I don’t think they will particularly. But in New Zealand specifically, most of those companies will struggle to replicate the amount of money on a direct basis that they have been getting from distributors like Sky here.”
This is not going to be decided in a hurry. Most of the new streaming platforms are not anticipating turning a profit for five years or more. It’s plenty enough time for some to get cold feet and return to wholesaling. It’s also plenty enough time for Sky to suffer a cataclysmic collapse, and lose before it has a chance to be proven right.
The market has already issued a verdict. Since Stewart’s arrival its shares, already at historic lows, have halved again. Now it’s worth a hair over $300m, a far cry from its time in the $2bn-plus club, reserved for New Zealand’s biggest corporates. Analysts barely cover it now, essentially having marked it as sailing into a swift sunset.
They might be right. The challenge is enormous, both in scale and complexity. But to spend time with Stewart is to marvel at his drive and belief. To navigate through such a profoundly difficult media environment will require not just hard work, but great strategy. For the first time in a number of years, Sky is travelling at pace again. Whether it’s towards a cliff or clear air will be revealed soon enough.