SKY Network Television : 21.08.17 - Appendix 1 - NZX Release August 2017

Appendix 1 Release to NZX

Full Year Preliminary Announcements and Full Year Results

Sky Network Television Limited
Results for announcement to the market
Reporting Period	12 months to 30 June 2017
Previous Reporting Period	12 months to 30 June 2016

Amount (000s)	Percentage change
Revenue from ordinary activities	$893,485	3.7% decrease
Net profit (loss)	$116,344	20.9% decrease
Profit (loss) from ordinary activities after tax attributable to security holder.	$116,026	20.9% decrease
Net profit (loss) attributable to security holders.	$116,026	20.9% decrease

Interim/Final Dividend	Amount per security	Imputed amount per security
Final	$.125	$.048611

Record Date	5 September 2017
Dividend Payment Date	14 September 2017

Comments: The results include one off costs of $2.1 million incurred in relation to the planned acquisition of Vodafone NZ. Also refer management commentary attached.

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FINANCIAL STATEMENTS JUNE 2017

SKY NETWORK TELEVISION LIMITED

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CHIEF EXECUTIVE'S LETTER Dear Shareholders, It is my pleasure to present to you my 16th annual shareholders' letter. The financial statements, as always, will present a financial snapshot of the business. My goal with this letter is to give you an insight into your company and the industry it operates in. I will attempt to do this in a form that will suit the needs of the individual investor as well the institutional one.

Because of competitive tensions I cannot always go into as much detail as I would like, but rest assured identifying the problem is only the first step for your management team.

We are firm believers that when the winds of change blow, you need to build windmills not shelters.

CoMMERCE CoMMISSIoN ANd VodAFoNE

What a difference a year makes. A year ago my letter covered the pending merger with Vodafone New Zealand.

I will not waste time lamenting over what I think was a flawed decision by the Commerce Commission. It was the original desire of both companies to legally appeal the decision, despite the torturous and expensive appeal process, which would still require another shareholder vote after another negotiation round over changing valuations of the two companies.

However, as time went by it became apparent that we could action many of the opportunities and synergies through commercial agreements without the escalating costs of a merger. Some of these are in the market now, and you will see further proof points of the closer working relationship in the foreseeable future.

EXpLoSIoN oF CoNTENT oFFERINgS ANd THE RISE oF "pRESTIgE dRAMA"

Our team knows of every scripted series produced in English across the world. In 2012, 266 series were produced. This year the figure reached 455 series. If every series in planning as I write this letter actually gets made, the figure should jump to 534 series next year. The bulk of this increase has been in dramas, and particularly a "new species" of content called Prestige Drama.

It is hard to define Prestige Drama but you know it when you see it. There are dramas you can watch while you sit on the couch with a laptop answering

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emails. But Prestige Dramas capture your undivided attention. They are like novels. You wouldn't start the series in episode 3 any more than you would start a novel with chapter 3. You want to view all the episodes and you want to see them in order. These Prestige Dramas are attracting the biggest Hollywood names. The best writers, directors and actors are all attracted to these productions which reinvent the traditional TV series to a 12 hour movie.

Fortunately we picked up the trend of Prestige Drama early and started investing on the ground floor before

anyone else in New Zealand. As a result our customers are enjoying excellent shows like Game of Thrones, Westworld, Fargo, The Americans, Billions, Doctor Who, Twin Peaks,

Big Little Lies, Taboo, Legion, Feud, Genius, Homeland, Ray Donovan and The Leftovers to name my favourites this year.

VIdEo oN dEMANd

Globally, the roll out of broadband and the conversion of analogue to digital has opened the door to numerous new business models. Content is now being bundled to sell electricity, internet and online delivery services. New entrants are attempting to use content to drive new business models. They include:

• Subscription Video on Demand (SVOD) where subscribers pay a monthly price to access a pool of content on demand. These SVOD models can be as broad as Netflix or as narrow as the WWE Network which is for professional wrestling aficionados.

• TVOD or Transactional Video on Demand models where you pay an amount based on the content you watch on a programme by programme model. Most often this relates to movies, but is also used for series and in particular for sports and events.

• AVOD or ad-based models that don't require a subscription fee, but you pay with your eyeballs viewing ads instead of your credit card.

  Most of these new models work on two new technological advancements - abundant, inexpensive and universally available fast broadband; and VOD.

  Unsurprisingly, younger viewers are leading the VOD change.

  An organization called Thinkbox carried out a study called 'Truth about Youth',

  comparing 16 to 24 year olds with all individuals. 30% of the focus groups watched videos, mostly VOD, on tablets and smartphones, double that of the average person. The study included play-back, VOD, live TV, online viewing services, DVD's, and SVOD services.

  Before I go further, it is worth noting that traditional linear viewing is still the most dominant way people watch television and will remain so for some years. Linear TV has been holding remarkably steady even as online programming manages to capture an increasing amount of our time. Clearly, then, we're not witnessing a direct or clear-cut shift from linear to online yet.

  But what we are witnessing is a transition, and at SKY we are clear that VOD is the future. It is already the most disrupting force in television viewing, for several reasons:

• Linear channels pick up a great deal of fortuitous viewing in the "lean back" world. Popular shows provide great lead-ins for the next show in the schedule. In the VOD world viewers do not passively stay on

  one channel. They make a deliberate choice for their next programme, tee it up and start watching.

  In the multichannel world that traditional Pay TV platforms have operated in, customers tend to channel surf, find something interesting and watch it. In the VOD world, provided curation is done correctly, surfing does not exist because you have a list of shows you want to watch.

• VOD models with strong recommendation engines can have a competitive edge because you can buy far less content than a traditional Pay Television platform.

Using curation and analytical viewing statistics you can surface just the right content.

A good example is NEON which is one of the most content rich SVOD services in New Zealand. As I write this, NEON has about 4,000 hours of content available to view. By contrast, the typical 100 channel Pay TV platform has to program channels for 24 hours a day 365 days a year, meaning hundreds of thousands of hours of content a year. Clearly SVOD models can purchase far less content a year than the traditional Pay TV platform.

VOD will someday replace linear, make no mistake about it. But don't assume the decline of linear means the decline of viewing, as quite the opposite is happening. People are watching just as much content as ever before, but they are watching it in new ways.

In spite of what the news media would have you believe, no New Zealand based media firm has embraced VOD more than SKY, from the launch

of our MY SKY boxes (which allowed customers to convert linear content to VOD) to the more recent launches of our NEON, FAN PASS and SKY On Demand services. Right now the new platforms are challenging both

technically and financially. But so was the Cable TV industry when I started my career.

While now is not the time for a massive conversion of our core business, as

a significant number of our customers still rely on our satellite-delivered service for their sports, news and entertainment, we are embracing

the opportunity to compete in new media models.

We are advancing VOD on several fronts. Our customers have opted to connect 49.6% of our MY SKY decoders to their home wi-fi systems. This connection gives them access to 9,000 pieces of content. We call this service SKY On Demand and last month 775,000 pieces were downloaded by customers. Keep in mind most of these customers already have MY SKY hard drive decoders where 143 million hours are recorded each month to watch later on demand.

In addition, we have our SVOD service, NEON. In the month of July alone we had 1.7 million requests for individual movies or episodes.

Stratification on content When I was a young man growing up in the 60s, I was listening to the Beatles while my parents listened to Frank Sinatra. While we each had our music preferences we easily could

identify each other's favourite artist as well. Today I suspect this would be impossible and to a large degree video content is much the same way. A good example is looking at the weekly list of the most downloaded programmes.

I get two lists, one for our traditional satellite subscribers who trend older, and NEON which tends to be younger viewers. There are exceptions like Game of Thrones, which appears high