ockel:

 

 

 

Lightbox at its inception would have had a target IRR that should have been several hundreds of basis points above parent WACC given its startup nature and risk profile.  That would have been set to justify the capital allocation to the project at inception and in each corresponding period.  It would likely have been given 3 years to achieve that IRR and expected to been EVA positive from that point on.  Thats basic management accounting.  To not adopt such accounting would be extremely irresponsible in terms of representing shareholders interests.

 

Its not a problem to subsidise a project but that subsidy must be accounted for in terms of project costs - as the capital from that subsidy could be used in other internal projects seeking capital.  Payments from Spark to Netflix will be a real and measurable cost to HMB and should be regularly reviewed to ensure that that capital isnt better deployed elsewhere in the business.  

 

Since the new Sky CEO came on board (share price didnt do much after the announcement of his appointment last year) both the Sky share price and the Spark share price have underperformed the market (this despite Sparks good yield nature in a declining interest rate environment).  Markets can tolerate competition.  Markets dont like irrational competition.  

 

And Lightbox already has a premium version.  If Spark wanted Lightbox to grow - and it made good financial sense to do so (EVA positive) then it would commit more capital to it.  Spark wants media to grow earnings.  It always has, it always will.  As a business it can only cut costs for so long - sooner or later it has to grow the top line.  And media is an important plank to that.   

 

Its fairly clear that LB, while a product that can generate revenue, is a retention tool. Its value is not its ability to generate a net profit, but its ability to stem churn. Net profit might be x% of revenue. churn is 100% of revenue

I referred to the Sky share price prior to Spark Sport, its been tanking for some time now. As to whether the two companies are both acting irrationally, well, thats up for debate. Sparks see an opportunity, thats not irrational. Sky has to do something. Im not sure why commenting on the Sky share price when the CEO changed is relevant, there is a very clear reason for that

By premium I did not mean more devices or resolution premium. Surely you realised that, it was in the context of a new partner, which implies a net return, which could mean a premium service at an extra price

I personally dont see the issues here at all, they are business ventures, and Im sure both CEO's know a bit more than us, as does their boards who will have authorised these ventures. Both may succeed, both may fail, maybe one succeeds