Sky Media’s ad blunder occurs at pain point in TV’s transition to digital
Sky Media owes its advertising partners hundreds of millions of pounds after the broadcaster discovered that it had been under-reporting revenue to them.
The misreporting dates as far back as 2017, before Sky was acquired by current owner Comcast.
Sky Media is the ad sales arm of Sky. It sells advertising on Sky channels as well as for third parties in the UK, with clients including Paramount and Warner Bros Discovery.
Other major TV ad sales houses in the UK include ITV and Channel 4.
A spokesperson for Sky Media said: “When we became aware of an issue in relation to payments to partners, we acted decisively, conducted a thorough review process, proactively notified all partners and are in the process of fully reimbursing them. We have made the necessary internal changes to prevent this reoccurring.”
According to The Daily Telegraph, an undisclosed number of Sky Media staff have already departed the company in relation to the mistake.
Analysis: Potential strategic impact
The news comes at a fraught time for Sky, which last month reported that its losses doubled to £224m in 2023. Expenses increased across all of its verticals while total revenue remained flat.
Advertising revenue declined 5% to £1.2bn — a slightly better performance compared with ITV (-15% to £1.78bn) and Channel 4 (-16% to £1.02bn).
Meanwhile, Sky faces an inflection point in 2025 over the renewal of its content deal with Warner Bros Discovery’s HBO, which currently uses Sky as the exclusive host of HBO’s premium content in the UK.
Matthew Bailey, senior principal analyst, advertising, at consultancy Omdia, argued that Sky’s ad revenue outperformance has been buoyed by its live linear sports audiences more than its premium streaming content.
Still, the broader trend in TV over the past decade has been away from linear viewing and towards digital consumption.
Given Sky’s accounting mistake goes back seven years, Bailey noted that the timing is particularly distressing for its ad partners, since it covers a time frame in which linear broadcasters have been put on the back foot by changing consumer behaviours.
Since 2016, according to Omdia’s analysis, the linear TV ad market has shrunk 20%.
“That linear segment has really been squeezed and it’s that segment that has offered 80-90% of the revenue opportunities for the companies that use Sky Media’s sales house,” Bailey told The Media Leader.
“If you look at that trend and the fact [Sky’s ad partners] have been short-changed in that area, it could have impacted some strategic decisions, because we have seen that linear TV segment decline. And if they’re not getting as much revenue as they should’ve been, then it probably looks worse on their books.
“That makes it even more of a big deal than perhaps it would’ve been. Because it’s not happening in a growing segment. […] When things are offering diminishing returns, every penny counts.”
While Bailey conceded that it is unclear whether the repayments will have a substantial impact on Sky’s overall business in 2024, it could further weigh on the broadcaster’s profitability at a time when its losses have already grown.
‘Doing everything they can to put it right’
The revelation of such a large miscalculation could impact Sky’s relationship with these ad partners and trust in its ad sales operations.
Bailey suggested that it “looks like [Sky] is doing everything they can to put it right” — a move that could “stem the flow” of ad partners considering alternative arrangements in the future.
That said, those ad partners may look to adjust their arrangements with Sky anyway because of strong competition from ITV, which is looking to become “the standard” for the increasingly important digital TV ad sales segment, according to Bailey.
As for the smaller broadcasters that have been impacted, the decisions they have made over the past seven years based on what now turn out to be inaccurate ad revenue figures cannot be undone.
Bailey concluded: “There will be questions asked about ‘Did we make the right decision? Did we have all the information we needed?’”
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