Sky TV Acquires Three Network in Landmark Media Deal

Discovery NZ Assets Sold for Nominal Sum Amidst Financial Restructuring

Sky TV is set to acquire the assets of Discovery New Zealand, including the popular Channel Three, in a significant move that reshapes the nation’s media landscape. The deal, valued at a symbolic $1, was confirmed this week, signalling a new chapter for both entities.

Strategic Shift for Sky TV

The acquisition of Discovery NZ’s television assets, effective next Friday, is seen as a strategic move to bolster Sky TV’s position in the market. Sophie Moloney, Sky TV’s Chief Executive, highlighted the opportunity to accelerate growth, stating, “The company’s ultimate parent, together with the company’s shareholder, is currently assessing options for the future of the New Zealand business.” She added that these options included strategic transformation and potential sale discussions, with a transaction eyed for 2026.

Moloney further explained the rationale behind the acquisition: “In particular, acquiring the established and fast-growing ThreeNow BVOD [broadcasting video on demand] platform adds an important missing component to Sky’s portfolio, without incurring the significant brand and platform development costs and inherent revenue risks associated with building a BVOD service ourselves.” This integration is expected to enhance Sky’s scale and reach, creating new advertising avenues and maximizing content investment returns through a strengthened multi-platform approach.

The market has responded positively to the news, with Sky TV shares seeing an increase since the announcement. Analysts from Forsyth Barr, Aaron Ibbotson and Benjamin Crozier, noted that while the Three business has a “chequered financial history” under previous ownership, Discovery NZ has completed significant restructuring. They consider Sky’s targets “realistic” and maintained an outperform rating on Sky shares, increasing their target price.

The financial statements for Discovery NZ reveal significant challenges, including negative cash flows from operating activities amounting to $46.4 million in the latest reporting period. As of December 31, 2024, the company reported net liabilities of $208.6 million and negative working capital of $207 million, while also holding cash balances of $26.8 million and bank overdrafts of $167 million.

Discovery NZ’s Financial Restructuring

In response to a challenging New Zealand macroeconomic environment and declining advertising markets, Discovery NZ has implemented substantial cost-reduction initiatives. These included the closure of Newshub’s news operations, a new partnership with Stuff Digital for a 6pm news bulletin, increased reliance on global content, and a reduction in local programming. These measures led to significant cost savings and a reduction in wage and salary expenses from $49.8 million in 2023 to $36.3 million in 2024.

The company incurred nearly $15 million in redundancy and termination costs last year, impacting approximately 300 staff members across various departments, including Newshub. The firm currently employs around 130 staff. This operational overhaul was a precursor to the sale, with further cost-saving measures planned for 2025, such as lease expenditure reduction and ongoing refinement of the cost base.

The value of the Discovery TV assets to its new owner is estimated by fund manager Octagon to be around 35 cents per share, totaling just over $48 million. Wealth manager Jarden also reiterated its positive outlook on Sky TV, lifting its target price following the announcement.