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Sky Germany: Trouble ahead?
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Thumbs up Sky Germany: Trouble ahead? - 10-December-2009, 23:00

Sky Germany: Trouble ahead?
Chris Forrester

Stock-markets hate uncertainty, and the news-flow out of Sky Deutschland over the past few months has generally not been good (football rights deals excepted - see separate story). CEO Mark Williams is being swapped out for a long-term Sky UK staffer Brian Sullivan. But there are other perceived problems at News Corps German pay-TV operation.

Indeed, the top job at Sky Deutschland is proving to be something of a poisoned chalice. Setting aside the allegedly criminal behaviour of the old Premiere management, we have seen the departure of Michael Boernicke, and now Williams, within the last 18 months.

New man Sullivan has an excellent reputation amongst Sky-watchers in Britain, but he has not held anything like a top job at Sky. Williams had been COO at Sky Italia, and shortly after that CFO for James Murdochs News Corp Europe operation and based in London. He was originally on a one-year contract that was renewed as recently as September 2009. Mr Williams still owns 1.25m shares in Sky Deutschland (Sky-D), a personal investment which he will reportedly keep. Since Sky-D announced his departure the broadcasters share price has slumped.

Brian Sullivan is MD of Skys Customer Group, and as a banks report said on Dec 10 he has a solid pay-TV pedigree. He will work alongside Mr Williams for 3 months from January 1 and take over as CEO on March 31. Sullivan worked hard on the Sky+ PVR and on the Sky+HD receivers, both of which are recognised as being major successes in the British market.

Morgan Stanley, in a note, pulled no punches in laying out the problems for Sky-D, not helped by anxieties over its current trading patterns. The market fears that the Williams departure implies further poor trading in Q4, says the banks note. This has been exacerbated by Sky not formally reiterating its EBITDA breakeven by end 2010 on 2.8m-3.0m subscribers guidance. Missing this target could in turn exacerbate refinancing risk. The market has assumed the worst.

A more positive view, says the bank, could be that keeping Mr Williams on for the next 3 months could be good news. Mark Williams is staying on until end March to handle the transition. That Sky has not announced a change to its guidance should be reassuring as, if this was the underlying cause of the management change, it would have been required to make a formal trading update. Sullivans appointment shows the continued backing of NewsCorp.

Now the bank has reduced its own model numbers, cutting Q4 net additions to just 70,000 (it had expected 100,000 net adds), and a new end-2010 expected 2.8m subs (was 2.87m). Morgan Stanley reminds us that German viewers are notoriously frugal as regards pay-TV subscribing (just 14% of German homes subscribe to pay-TV) and that economic conditions are even worse today than a year or so ago. The risk is that the recent change of CEO signals further short term disappointing news.

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