Pay-TV

Sky Deutschland, Germany's floundering pay-TV provider, has only managed to sell less than two-thirds of the new shares it intended to raise new capital with. The company sold about 169 of 270 million shares, with all but one-third of the shares sold going to News Corp, its primary investor.

Rupert Murdoch's News Corp has continued to back Sky Deutschland, of which it now owns 49.9 percent, throughout the pay-TV provider's troubled history. In August, Sky announced plans to raise 340 million euros ($461 million) of much-needed capital by making its seventh share sale since 2005.

It raised 177.4 million euros, leaving News Corp to float another 162.6 million euros to sustain the business, which in August predicted a yearly loss of 130 to 170 million euros.

Many analysts doubt pay-TV is sustainable in Germany – Europe's largest television market – for a number of reasons. But News Corp continues to spend money on Sky Deutschland, which has exclusive rights to televise Bundesliga soccer games live.

German market difficult

Sky Deutschland currently has about 2.4 million subscribers. Peter-Thilo Hasler, an analyst with Viscardi AG in Munich, said if the company could get to 3 or 3.5 million subscribers it could at least avoid “burning money.”

“I don't think that Sky can survive – at least not without Murdoch,” he told Deutsche Welle. “I don't think it can be profitable in Germany.”

Problems include that Germans are required to pay license fees for public broadcasters, lessening their willingness to pay for premium services, according to Hasler. Also, pay-TV's appeal has been lessened now that movies are available for little money on DVDs or streaming over the internet. Bundesliga matches are often watched in bars and highlights reels are televised soon after.

Extreme long-term investment

But Ralf Siepmann, a media analyst and head of indikativ GmbH in Bonn, said while continued investment into Sky Deutschland may be “completely incomprehensible to financial analysts,” the company does have long-term prospects for success.

“I think one needs to look at the Murdoch-Sky constellation in a larger context,” he told Deutsche Welle. “I see Rupert Murdoch with his activity in digital as the world's leading fighter for paid content… (he) has proven himself to be extremely stubborn in many cases.”

Sky Deutschland is not completely without options, according to Siepmann. It could, for example, at some point use its exclusive rights to Bundesliga games to open a new line of revenue in the context of a liberalized online gambling market, he said.

Siepmann did criticize the inflexibility of the packages Sky Deutschland offers, describing them as difficult to market. For instance, customers can't order Bundesliga games from just one team, but rather have to order the entire season and the rest of the entertainment package.

Average investor unlikely to profit

Frank Neumann, an analyst with Bankhaus Lampe, also said Sky Deutschland's situation needs to be viewed in context, adding that pay-TV is “doable, but difficult.” One long-term interest for Murdoch's powerful News Corp may be to keep competitors out of the German market, he said.

However, Neumann is not surprised that no wave of fresh investors materialized to buy Sky Deutschland shares.

“The advantages are larger advantages for this company,” he told Deutsche Welle. “That's apparent, as many investors did not go along. The question is just if there's anything in it for a smaller investor, or if it will simply take too long. We've labeled the stock as ‘sell,' because an average investor isn't necessarily going to profit from it.”

Author: Gerhard Schneibel
Editor: Nina Haase