Losses mount at Sky ahead of WBD showdown
Sky’s losses doubled last year to £224m, the pay-TV broadcaster reported in a recent Companies House filing covering its full-year 2023 financials.
Operating expenses increased across all verticals, inclusive of programming (+0.7%), direct network costs (+2%), and sales and administration costs (+1.6%). In total, Sky’s operating expenses grew 1.4% in 2023 compared to the year prior.
That occurred as Sky’s total revenues stayed flat (+0.3%). While its direct-to-consumer (DTC) segment grew revenue 1.65% to £8.5bn, advertising revenue declined 5% to £1.2bn. Content revenue also dropped 8% to £527m.
The decline in ad revenue is less substantial than its free-to-air broadcast rivals; Channel 4’s linear ad revenue fell 16% in 2023 to £1.02bn, while ITV saw a comparable 15% decline in linear revenue to £1.78bn.
In Sky’s financial statement, the company reported that while ad revenue was down year on year, it “held up well inspite of the market squeeze driven by the cost-of-living crisis”.
Meanwhile, Sky’s improved revenues in its DTC segment were attributed to continued growth and increased prices for Sky Glass, Mobile, Broadband and Streaming. However, content revenue was down thanks to “lower wholesale subscribers and a renewed contract with a lower minimum revenue guarantee”.
Sky did not immediately respond to a request for further comment.
Analysis: Pressure points to come with sports rights and HBO deal
Sky attributed its increase in 2023 programming costs to the impact of that summer’s World Cup on the 2022-2023 Premier League football season, which led to costlier football matches being pushed into 2023. Sky also noted there was a bump in incremental costs for Sky Originals titles, though this was offset by a reduction in paid-for third-party content amid the 2023 writers’ strikes.
Sport programming costs have inflated in recent years, placing pressure on broadcasters to pay more to retain highly valuable and reliable programming. For instance, whereas broadcast rights to the Premier League previously cost £5.1bn from 2022-2025, in December of last year Sky renewed its deal with the League for a cost of £6.7bn through the end of the decade.
Looking ahead, the broadcaster is also at a a key inflection point over the renewal of its content deal with Warner Bros Discovery’s HBO, which currently allows Sky to exclusively broadcast many of its premium TV programmes in the UK market.
The current exclusivity agreement expires next year, and it is unclear whether a new agreement will be brokered.
Warner Bros Discovery plans to launch its own streaming service, Max, in the UK market in 2026. Doing so could threaten a significant driver of Sky’s subscription model even if Sky is still able to license HBO’s content, as it would no longer be exclusive.
Of note, 2026 is also the year slated for HBO’s new Harry Potter TV series’ debut, and Warner Bros Discovery has sought to keep it for itself rather than license the show to Sky.
Does the Harry Potter row hint at the start of a new era at Sky?
In September, that decision prompted a lawsuit by Sky, which alleged Warner Bros Discovery of being in breach of their current agreement.
The suit states: “Warner’s reason for refusing to honour its obligations to Sky could not be more clear: Warner has chosen to keep the Harry Potter series for itself and make the blockbuster series the cornerstone of its own Max roll-out in Europe.”
A Warner Bros spokesperson responded at the time by calling the lawsuit “a baseless attempt by Sky and Comcast to try and gain leverage” over post-2025 programming talks.
The spokesperson told Variety: “We know HBO branded shows are critical to Sky, as evidenced by their desire for over a year to find a way to renew our agreements, and this lawsuit makes it clear that Sky is deeply concerned about the viability of its business were it to lose our award-winning content. WBD will vigorously defend itself from this unfounded lawsuit as we move forward undeterred with plans to launch Max, including the new HBO Harry Potter series, in the UK and other European markets in 2026.”
A spokesperson for Sky then responded: “Warner Brothers. Discovery is a longstanding partner to our business. In the course of our work together, we have been unable to resolve a dispute over a specific agreement. As a result of exposure to harm and losses we have initiated proceedings to safeguard our interests and enforce our rights to partner in the production and distribution of highly valuable content. We look forward to achieving a swift and conclusive resolution of the matter.
“At the same time, we continue to work constructively with Warner Brothers. Discovery and have a separate agreement in place that will ensure Sky customers continue to enjoy HBO shows, including new seasons, such as House of the Dragon, The Last of Us, The White Lotus and Euphoria, along with exciting new releases such as Dune: Prophecy, and many more for years to come.”
Earlier this summer, the Financial Times reported that Warner Bros Discovery was also in separate talks with UK streamers to potentially offer licensing agreements for HBO shows.
As Media Leader columnist Stephen Arnell previously wrote, Sky could be “in dire need of quality popular programming” should its relationship with Warner Bros Discovery sour.
That could lead to a further increase in programming costs should Sky look to license other shows or ramp up its in-house productions at Sky Originals. If revenues remain stagnant, such increased costs would further weigh on Sky’s bottom line.