SKY Network Television Limited (SKT) Earnings Call Transcript & Summary

Good morning. Welcome to our annual results presentation for the 2020 financial year. Today, I'm joined by our CFO, Blair Woodbury. When we presented our annual results last year, we set out an ambitious plan to transform our business by accelerating streaming, managing costs and creating a platform for growth. As we reflect on the year, it's clearly been 1 of 2 distinct halves. In the first half of the year, we made steady progress against our strategy as well as achieving significant transformation within the business. And then COVID-19 hit. Now I'm extremely proud of the way that the SKY team handled the COVID lockdown and still continued to deliver great services to our customers. Like many New Zealand businesses, we had to pivot quickly to a new way of working, whilst also dealing with the significant impact of the lack of live sport and the disruptions to our partners and customers' businesses, particularly those in the hospitality industry. Our presentation today will cover 5 areas: First, we'll talk about the highlights of the last financial year; second, the impact of COVID; third, we'll talk about our financial performance, which Blair will take you through; fourth, I'll outline our progress in strategy focus areas; and we'll conclude with our priorities for financial year '21 and some brief remarks on the outlook. And don't worry, as ever, we will leave plenty of time for questions at the end. Given the context of this year, we believe that we've delivered a good result. And importantly, we've entered financial year '21 in a strong financial position, and we are well placed to further execute on our refreshed strategy. As you can see from this slide, we're presenting a solid set of numbers. We delivered what we said that we were going to and it's pleasing to be able to deliver that revenue at the top end of the guidance at more than 400 -- $747 million and EBITDA firmly within the guidance range. Now the Board did decide to make a noncash write-down of goodwill, and we will talk more about that shortly. We've worked hard on our customer service efforts, and we now have more customer relationships than SKY has ever had. Our satellite retention is improving, and we've continued to increase our streaming revenue, which was up by almost 35%. We've secured rights to the content that matters to our customers. The steps that we took in May to strengthen our balance sheet were prudent and mean that we are well placed to execute on our strategy and to navigate any further COVID-19 uncertainty. Now thank you to all of those -- to those of you who participated in the capital raise. I'm pleased that at the same time, we successfully renegotiated our bank facilities to be able to maintain available funding at the current level and to extend the duration of that funding on favorable terms. Now let's talk first about our customers. We've had superb customer engagement this year, and I thank every New Zealander who has interacted positively with us, particularly during the COVID period. As a result of that positive engagement, we have seen a pleasing 9-point improvement in our NPS score this year, which is an important measure of customer satisfaction. We talk often about being a truly customer-focused business, and that mindset is starting to produce results. Overall, we've delivered significant growth in our customer numbers, closing the year with 990,000 customer relationships through our SKY satellite service and through our streaming products. We've had significant growth of 153% in our streaming customers, boosted, of course, by the purchase of Lightbox. In July, we successfully launched our new Neon platform, which brings together the best of that Lightbox service and our existing Neon service. As part of that merger, we've changed the way that we recognize former Lightbox customers who were previously counted in Spark's customer numbers but were not directly paying. For transparency, we're providing the 31st of August number today, but it's important to note that this is no commercial impact given the wholesale arrangement we have with Spark, which remains in place until the end of January. We'll now take a closer look at the impact that COVID-19 has had on our business directly. Now we maintained careful cost control throughout the fourth quarter. While the impact of COVID caused our net revenue to decline by $18 million against our prior expectation for the quarter, the cost savings we were able to put in place offset that impact. We achieved those savings through reduced production costs where sports events were on hold, and we were also able to negotiate some payment reductions with certain sports rights partners. As I mentioned, our team did a superb job serving customers during the COVID period, and it was achieved whilst also undertaking significant business change that was designed to make SKY more efficient and effective and to reduce costs. It's a credit to our people that this work was done so professionally and effectively. We paid our people their full wage throughout the COVID disruption, with cost savings being carried by the executive and leadership teams that agreed to give up the executive incentive scheme this year. I also note that SKY did not claim the wage subsidy from the government, with the exception of 2 very small subsidiary teams. We reported in May that only 8% of our sports satellite customers had downgraded their subscriptions during the COVID period. Now we limited this impact by offering free entertainment services to all of our sports customers. And it's pleasing to be able to report that the return of sport has seen the majority of those customers who did spin down return to their full subscriptions. It's also good to see that some of our customers who enjoyed free entertainment upgrades during the lockdown have chosen to continue to subscribe to them. We had a limited ability to acquire satellite customers during the lockdown period, but we've seen a resurgence of satellite customers since then. The positive trend of increased acquisitions and a continued reduction in churn is very pleasing. In the 17 weeks to 31st of August, we saw net churn of 2,500, a superb improvement from the same period last year where net churn was 10,500 (sic) [ 10,600 ]. Sky Sport Now customers are also returning, and we've seen double-digit growth each month since the return of live sport. At the time of the capital raise in May, we provided you with an indication of the possible financial year '21 performance under a scenario based on a gradual return to live sport, starting in January '21. We're pleased that the faster-than-expected return of sport means that we're outperforming these more conservative expectations. You'll see here that actual revenue since the time of the capital raise has been consistently above the level anticipated under the more pessimistic financial year '21 scenario that's shown. As a result, we're providing updated guidance for financial year '21, and we'll go through this in more detail later in the presentation. Whilst uncertainty remains over the exact nature of sports competitions in 2021, we are working closely with our sports partners, and there's a determination to deliver exciting and strong sport content even though it will almost certainly be different from what fans have seen prior to this year. I'll now hand over to Blair to take you through the numbers.

Thanks, Martin. It's been a year of change and challenges for SKY, with our results being impacted by the effects of our transformation activities, the financial performance of our acquisitions, COVID-19 and reporting under IFRS 16 for the first time. Our reported results show a net loss after tax of $157 million compared to a loss of $608 million in 2019. Excluding the noncash goodwill impairment of $178 million this year, the profit after tax was $20.7 million, which was inside the guidance range we gave in May. There are also a number of one-off items in both 2020 and 2019. And as you saw earlier, COVID-19 did impact our results in the final quarter. The adjusted profit before tax for 2020 was $59.4 million compared to $135.6 million in 2019. Once we look past all of the moving parts, the decrease in 2020 was driven by continued decline in satellite revenues, commercial and advertising revenue declines from COVID-19 and increases in costs that mainly came from the acquisition of RugbyPass and Lightbox. We've recognized approximately $200 million of one-off items in 2020. The largest item is the noncash impairment of goodwill. As highlighted in the recent capital raise documentation as a key risk, the impairment has arisen as a result of management and the Board's review of the appropriate carrying value of goodwill, reflecting the expected future COVIDs in a post-COVID world. The impairment is driven by the separation of RugbyPass cash flows from the remainder of SKY, an application of higher discount rates being applied to those future cash flows. The higher discount rates reflect the increased uncertainty of growing RugbyPass where access to rights in the nature of rugby competition remains unclear. And the overall enterprise valuation needing to have reference to the share price that prevailed at June 30. For RugbyPass, goodwill has been impaired by $27.5 million, reducing the carrying value of goodwill to $11 million and the implied RugbyPass enterprise valuation to $16 million. The RugbyPass cash-generating unit forecast now reflect a smaller business that does not include expansion of the streaming business that is reliant on future rights. For SKY, goodwill has been impaired by $150 million, reducing the carrying value of goodwill to $245 million and the implied enterprise valuation overall at $350 million. Our forecast, by and large, have remained consistent with our 5-year plan, with the change in terminal growth rate and discount rates being the significant driver of the impairment. Other than goodwill, there was a total of $15.5 million of redundancies occurred in 2020, reflecting the ongoing reorganization of the business to become more flexible, collaborative and rightsize the business. We've reduced our workforce by approximately 200 full-time equivalents, which is about 18% from our opening position in 2019. And we anticipate a saving of about $10 million per annum after allowing for some reinvestment to strengthen some critical capabilities. During the year, we identified that scale may have an exposure under the Holidays Act and have established a provision of $3.2 million should further work confirm that amounts are owing to current and former employees. We wrote off $3.2 million of commitments to content that we do not believe would derive sufficient revenues to justify its carrying value, and we prudently paid $3 million to a satellite consortium to reserve capacity while we work through the change satellite replacement program with Optus. And finally, we incurred $3.3 million of consultancy costs that aren't expected to recur as they related to acquisitions and the recent capital raise activities. Total revenue for 2020 declined by just under 6% to $748 million, which was lower than the prior year's decline of 7%. If we adjust for the $18 million net impact to revenues from COVID-19 in the final quarter, it would have meant that revenues declined by about 3.7% in 2020. Satellite revenues reduced below $600 million, but we are seeing continued reduction in the year-on-year decline, driven by our efforts to improve the perception of value for customers. Streaming revenues have grown to be 8% of total revenues, up from 5% just a year ago. And we expect this trend to continue as more and more customers look to view their content over our streaming platforms. Commercial and advertising revenues were impacted by COVID-19 in the final quarter, and I'll dig into this a bit later. Satellite revenue declines -- satellite revenue decline continues to slow with 7.6% decline in 2020 compared with over 9% in 2019. As Martin explained earlier, we're seeing some really good indicators in our residential satellite base with both increases in acquisition and decreases in customers leaving, such that our recent net customer loss is the best it has been for many years, and we even achieved growth -- customer growth in June 2020. Average revenue per user has remained relatively strong, only declining $1 from 2019 to sit at $82. This decline was driven in part by the sports spin down of COVID, but also the full year impact of the customer value enhancements that we made earlier, such as removal of the add-on phase like introducing casting and improvements we made to Sky Go. Given the earlier return of sport and sports subscribers, we anticipate the ARPU impact on satellite customers to be significantly less than was assumed in the guidance given at the time of the capital raise. Looking at streaming. Included in streaming revenues are our entertainment streaming service, Neon; our sports streaming services, Sky Sport Now and RugbyPass; and the retransmitted entertainment and sporting content, most notably Vodafone's TV service, which is delivered over broadband. At the heart of SKY's growth strategy is the transition from traditional satellite delivery to streaming delivery to match the structural shift in the way that people are viewing content. SKY has been providing streaming services to New Zealand since 2011 when I first launched [ I-SKY ], and it's great to see the effects of our streaming-focused strategy coming to fruition with revenues increasing 35% year-on-year and almost 50% since 2018. Growth in Sky Sport Now was adversely impacted by the lack of major sporting events since its launch in 2019 and is largely consistent with prior years. Retransmission revenue has also remained flat year-on-year. The $15 million revenue increase in 2020 comes from the RugbyPass and Lightbox acquisition, supporting the need for SKY to look for both organic and inorganic sources of growth. With the changing nature of the streaming products and customer base, it's not meaningful to compare ARPUs with prior years. The blended monthly ARPU for streaming was $20 in 2020. This is lower than prior years due to the lower ARPU RugbyPass and Neon customers becoming a larger proportion of the streaming customer base. During the year, we repriced Neon to position it as the most compelling paid for streaming service in New Zealand that has the highest quality shows at an attractive price relative to competitors. Looking ahead, SKY's broadband service will become a core part of ensuring our streaming customers receive a great content viewing experience delivered over a high-quality broadband platform in the same way that our existing satellite customers can be assured of reliable delivery of content to the stream of their choice. Commercial and advertising have historically accounted for around 15% of revenues. This year, both advertising and commercial revenues were impacted by COVID-19, and their contribution to total revenue fell to just over 12%. In quarter 4, advertising declined by 33%, consistent with the declines experienced by other media businesses. Advertising revenues through July and August have improved and are expected to be around 90% of the pre-COVID run rate in the first quarter of financial year '21. SKY's advertising revenues are influenced by the nature and quality of sport that is available. So changes to the sport calendar will flow through to advertising revenues, but we remain optimistic that sports here in New Zealand and around the world will continue to be played, giving their advertisers and sponsors the opportunity to share their branded messages with SKY viewers. Overall, SKY is retaining its share of the TV advertising market, albeit the market remains challenging. For commercial revenues, SKY proactively offered discounts and payment holidays to customers through the fourth quarter, reflecting the challenges faced by those businesses as a result of border and gathering restrictions. We've commenced unwinding the discounts and payment holidays, reflecting the lifting of restrictions and expect to return to normal billing through the first half of FY '21, obviously, subject to any further restrictions the government may require. After adjusting for the Q4 impacts on revenue, commercial revenues would have been consistent with prior years. Reported expenses increased by less than 1% to $702.7 million, but there have been many moving parts in operating expenses during 2020. The material movement in expenses have been driven by 3 main factors: firstly, the adoption of IFRS 16, which show roughly $40 million reclassified out of expenses with those costs now spread across depreciation and amortization and the interest categories; next, there's been $34 million increase in expenses due to the acquisition of RugbyPass and Lightbox. The majority of the RugbyPass and Lightbox costs are included in programming and broadcasting and infrastructure cost loans. And then finally, operating expenses benefited from the interventions we've made to continue SKY's transformation and the $25 million of benefits arising in Q4 from our response to COVID-19. Looking at the key expense lines now. Programming expenses increased by 5%, but would have been largely flat year-on-year if the programming costs associated with the acquisitions during the year are removed. Programming costs now account for 45% of revenue in 2020, up from 40% in 2019, mainly driven by the decline in satellite revenues and the revenues from the acquired businesses, not offsetting their programming costs. During the year, a number of programming rights agreements renewed with most of these agreements yet to come into effect. While it's pleasing to see many of our favorite sports back on screen, uncertainty remains with the timing and structure of events like the Olympics and Rugby competitions in 2021 still being resolved. Subscriber-related costs increased by 16%, consistent with the increase described in the first half of financial year 2020. The increase has arisen as SKY has rebranded, relaunched Neon and launched Sky Sport Now and increased its marketing initiatives to support growth in streaming and satellite acquisition. Broadcasting and infrastructure costs of $70 million in 2020 and $63 million in 2019 have been adjusted for IFRS 16 and one-off items to provide a better understanding of performance. The increase of 11% is driven by the increased delivery and distribution costs for Europe, RugbyPass and Lightbox. As earlier explained, one-off costs declined by $21 million, with 2019, including higher content write-offs, the cancellation of the IVP program and initial redundancies, whereas 2021 off costs include further redundancy costs, smaller content write-offs and the establishment of Holidays Act provision. Capital expenditure in 2020 was significantly lower than 2019 as a result of our interventions to lower expenditures and derisk the business through COVID-19 and the cancellation of the IVP project. We have contained CapEx to be in the lower half of the long-term range of 7% to 9% of revenue. And given the uncertainties, are looking to stay in the lower half of that range through FY '21. Nearly 36% of CapEx was spent on intangibles and software in 2020, reflecting our focus on streaming, including enhancements to Neon, the launch of Sky Sport Now and our accelerated focus on consolidating streaming services onto a new cloud-based architecture. A further 23% of CapEx was spent connecting people to the satellite platform, with the remainder of CapEx being spent maintaining the physical assets required to operate the broadcast and production platforms. On a per acquisition basis, the average CapEx per acquired satellite customer declined from $380 to $310, an improvement of nearly 20%. This reflects the improved targeting of our acquisition campaigns, an increased number of customers that have lower installation complexity. SKY continues to generate strong cash flow from operations, with nearly $200 million of cash generated from operations and $83 million after funding CapEx acquisitions and paying interest and tax. If we reclassified the $38 million lease payments as a type of CapEx, then SKY generated 6% of revenue as free cash available for financing activities. As explained at the time of the capital raise, the net $150 million received from the rights and placement has been used to repay $88 million of previously drawn funds from the banking facility, leaving $111 million of cash on hand, which we expect to use to repay the retail bonds in March 2021. The sale of OSB to NEP will support our transition to a lower capital intensity as $50 million of investment will be avoided. As Martin mentioned earlier, the impacts of COVID-19 in the fourth quarter did not materially impact SKY's performance, allowing us to continue to pay down debt and manage our working capital. SKY is now in a net cash position with $111 million of cash on hand at year-end, measured against no drawn bank debt and just $100 million of retail bonds due for repayment. As a reminder, the revised banking facility was extended to July 31, 2023, has a limit of $200 million for the entire term and is increased flexibility to address Sky's transformation funding needs and reflecting the uncertainty arising from COVID-19. Our latest estimates indicate that it's unlikely that we'll have to make material drawdown from the banking facility through the remainder of FY '21, allowing us to use cash on hand to repay the retail bonds. I'll now hand back to Martin.

Thank you, Blair. I'll now take a few moments to talk through our 4 key focus areas, which are: Satellite, Streaming, Broadband and our international rugby content business, RugbyPass. We've made significant progress against our strategy, whilst also securing rights, strengthening our balance sheet and transforming our business. Starting with the satellite, that part we continue to strengthen that core part of our business with a 21% improvement in our retention rate. As mentioned, we protected our valuable customer base and the associated ARPU with proactive offers during lockdown to minimize the sport downgrades. Also, the new Optus agreement demonstrates our commitment to this important customer group, whilst also providing greater functionality and improved flexibility at an overall lower cost. Our improved satellite performance has also been driven by our dedicated sales and customer value management teams who have put targeted actions in place to keep and to win back customers. Sky Go has been an important part of that fight, it's important asset for our customers with the strongest use coming from our highest ARPU customers. The powerful link between Sky Go use and reduced churn across the satellite base is clear to see. Our satellite customer loyalty is impressive, with 73% of our customer base, having been with us for 5 years or more, and this group has a very low churn rate at around about 7%. I'm pleased to say that despite COVID's impact on live sport, we finished the financial year 2020 with a stable mix of entertainment and sports subscriptions. Now as this chart shows, 59% of our customer base take everything. A further 31% have entertainment and another 10% have sport only. So that's 69% of our base taking sport and 90% taking entertainment. Now there's still clearly some opportunity for ARPU growth within satellite with 32% of the base are taking less than 2 packages. Our increased focus on streaming has delivered growth in customer numbers and in revenue. The purchase of Lightbox and subsequent launch of the new merged Neon service has strengthened our position in entertainment streaming. We're now clearly the most popular New Zealand owned and operated subscription streaming service. We not only achieved greater scale in customer numbers, but also acquired rights to content that has strengthened further the new Neon offering. And the new platform has combined all of the best features from the 2 services to deliver a great experience for customers. In the sports' streaming market, Sky Sport Now delivered over 7,500 live events. That's about 22,500 hours of live sport across 12 high-definition channels at a very competitive price. It also offers a great range of on-demand content, like ESPN's 30 for 30 documentaries, great behind the scenes features on our local teams, such as Warriors TV and all the best highlights from our vast sports offering. The strength of the content offer is unmatched in the New Zealand market. Our Warriors On Us promotions, which provided free access to the Warriors first match after lockdown was very successful, attracting both returning and new customers. In fact, 69% were new to Sky Sport Now, with over half of those people going on to take up a paid subscription. Now of course, Sky Sport now isn't the only way in which we stream our premium sports content to customers. Many of our sports satellite customers use the Sky Go app to access their sports content on the go. Sky Go allows the ultimate flexibility for this customer group with the quality and reliability of Sky satellite at home and the portability and flexibility of Sky Go while they're on the move. We'll be enhancing this service further -- further enhancing this service later this year. And you may have heard me say before that I believe that broadband in New Zealand is underpowered, underserved and overpriced. And we're working hard to address this by developing a compelling broadband product that's going to be differentiated on quality, service and value. And it's a natural fit with our existing business. It's going to be built for streaming, sports and entertainment content, and it will allow us to offer increased value for our customers and to reward their loyalty. And for that reason, our launch focus will be on customers with whom we already have a relationship through our satellite service. And that's approximately 35% of all New Zealand households. Along with our streaming customers, we will have a vast customer base to try and attract to the new service in due course. And we have many ways to reach them in a relatively low-cost way through on-screen advertising, various digital channels we have, and through our locally based call center that handles more than 1.2 million customer interactions each year. Now we do recognize, there's a lot of providers out there, but we think there is a significant addressable market, and we do intend to play a meaningful part. And that's why we've put significant effort into getting our launch plans right through extensive customer research and trials to deliver the best approach for our customers and for Sky. We remain excited as well about the opportunity that RugbyPass presents for Sky on the global rugby stage. Now whilst our ambitions for this business have been set back somewhat by COVID-19 and the consequent lack of global rugby product, we have taken the opportunity to refocus our efforts towards the audience media part of the business. In financial year '21, this will include new product launches like a premium subscription service, which we call the 15, podcast offerings aimed at both Northern and Southern Hemisphere fans and statistics services for broadcast and digital partners. The Premium Rugby Content business will continue to focus on the linear opportunity that we have in Asia. Turning now to content. In these presentations, we usually show you the wide range of popular content titles that we have on offer. They look great. But this year, we also want to talk about numbers. In financial year '20, Sky content was enjoyed by over 3 million New Zealanders a month on average, across our satellite, prime and streaming products. That content came from over 530 different partners, ranging from large global content creators to local production storytellers across entertainment, movies, news and sport. We had more than 10,000 hours of premier entertainment and movie content available to our customers. And in sport, we offer more than 7,500 live sports events, covering more than 60 sports codes. Now here are the images. Our sport offering is unrivaled in the market. During the last financial year, we secured rights to SANZAAR and New Zealand Rugby. Netball, the Supercars series, ICC Cricket, the Commonwealth Games, the PGA Golf Championships, the Masters, Cricket Australia, beIN's football service, to name but a few. And we are very proud to remain the Home of Sport. In entertainment, the deep partnerships we have with world-renowned storytellers enables us to share the best of global entertainment as well as strong local stories. We're heading into another exceptional Emmy year with Sky content nominated 130 times in 2020. And that's more than any other network or content provider in New Zealand. Turning now to 2021 and what you can expect to see from Sky. In Satellite, we aim to further reduce our net churn by continuing to build on the improvement that we've already seen through offering greater value, including through our broadband offer. We'll continue to deliver more value through our enhanced Sky Go app, which will be rolling out in the New Year. And we see opportunity to grow our share of advertising spend. In streaming, we will keep growing our streaming customer base, further cementing our leading position in entertainment streaming, and there's a significant opportunity to still grow Sky Sport Now, particularly for those customers who think that Sky is not for them. Sky Sport now offers all 12 of our sports channels and a deep resource of video-on-demand content as a stand-alone product with attractive pricing, no contracts, high-quality streaming and great ease of use. So what's not to like about that? Sky broadband is now live in the homes of many of our staff, including my own, and the trial is going very well. We'll extend it to a select group of customers in the coming month, and we're leading to a full launch in 2021. We're looking forward to rewarding the loyalty of our customers in this way and increasing the value that we provide to them. At the time of the capital raise in May, we provided a conservative view of 2021 that was based on a gradual return to Live Sport. So the faster than predicted return of sports, starting with the Warriors and the NRL in late May, was very welcome. Now provided that COVID restrictions remain at current or improved levels, we see the return of live sport, leading to a much improved revenue outlook. Now this will lead to higher costs, mainly in programming and production, but as we signal at the time, but it's a much more positive outcome for SKY for our sports partners, sports fans and ultimately for our shareholders. As a result, we're providing new guidance for financial year '21 of revenue between $660 million and $700 million, a EBITDA of between $125 million and $140 million, a net profit after tax of between GBP 10 million and $20 million. And a CapEx spend of between $45 million and $55 million. And in summary, and before we open to questions, we are extremely pleased with the resilience of our business and the progress that we've made in financial year '20. We've achieved the things that we set out to do. And during that time, we now have achieved the most customer relationships that Sky has ever had. We have a solid financial position as we enter the new financial year with the strongest balance sheet that we've had in 20 years. We will continue to retain a sharp focus on costs, and we have got a clear path forward with significant growth opportunities ahead of us. Thank you for your attention, and we'll now move on to questions. Thank you.

[Operator Instructions] We'll take our first question from Phil Campbell with UBS.

Just a few questions from me this morning. I suppose probably 3 of them. First one, I'm wondering if Martin, you can maybe talk about -- there was some reports in the press a month or so ago about a new set-top box that SKY was possibly looking at launching. The second one was just, obviously, we saw during the week the announcement by Discovery in terms of M&A there. Just wondering if there's any kind of implications for SKY as a result of that. And then thirdly, just in terms of sports, I know it's a bit of a moving piece, but I'm just wondering if you're able to make any comments around kind of the outlook for sport, particularly rugby over maybe the next 6 to 12 months and what you expect to happen there in terms of live sports?

Okay. Well, I'll try and take those in the order that you said. So set-top box, we are continuing to work through what our new product will look like. That's a pretty long process of -- as I'm sure that you're aware, in terms of developing and launching a new box. So that work is underway with our various technology teams. Secondly for Discovery, we've had a 25 or 26-year relationship prior with Discovery. It remains very strong. They spoke to us when the news first started to break about their acquisition of TV3 to assure us that they still saw that as a very strong and meaningful relationship. If you look at Discovery and how they operate around the world, they don't have a one -- sort of a one size fits all or a doctrine approach. They utilize relationships with pay TV aggregators like ourselves. They sometimes own free-to-air channels. They own pay channels. They even own a news service in Poland. They have direct-to-consumer relationships. So they do a bit of everything. And I think that they probably more than most companies tend to look at a market and to see what fits best for that particular market. So they see an opportunity in New Zealand, and we look forward to continuing to work with them, both in our core pay arrangement, but there's obviously opportunities for both of us with them owning TV3. So we look forward to having that conversation. What was the third one? Oh, sports. The -- well, the outlook for sports, I think, is positive. The government put in a very hard approach for New Zealanders in terms of combating COVID, and that was to an aim. And the aim of that was to be able to open up New Zealand for business with to do things here that maybe can't be done elsewhere in the world. And so we've seen that with a wonderful Super Rugby Aotearoa series of packed stadia for all those great games. And hopefully, we'll get back to that really soon.

And next, we'll move on to our next question in the queue from Arie Dekker with Jarden.

Yes, just on revenue first, I mean, obviously, positive to increase the outlook for that in FY '21. And I guess at the midpoint, the declines now sort of circa $70 million. So not that much above the trend level of decline. Can you just sort of talk to the things that you're making allowance for, I mean, what you see sort of being as the key drivers of that revenue decline composition?

Yes. Arie, look, I think it's very hard to predict revenue in the world that we live at the moment. Look, I'd be optimistic to say that would be in the upper half of revenue. If you look at our run rate over the last few months, which is you'd call that a COVID-impacted world, right? So I'd expect to be in the upper half of the range that we've put out. Things that might move us into the midpoint or below will really be driven by the impact on commercial, particularly the hospitality industry and a little bit under the accommodation as well. There would be advertising, whether or not there is -- the economic impacts flow through to advertisers, and it will also be impacted by the level of sport. We do overweight in sport. And then finally, the last major driver will be that impact of continuing to grow streaming revenues. At the same time, it's trying to fight -- to slow satellite declines. So we're reasonably optimistic that we've got some really good momentum at the moment in terms of our satellite customers. So acquisitions are up and losses are down. And if that continues, we should hit quite heavily be in the upper half of -- of the revenue range that we've given. Obviously, and everyone is nervous about what the long-term economic implications will be on New Zealand and elsewhere through RugbyPass, so it is a watching brief. It was quite a large range that we've given, but we're sailing along as well as we can in turbulent waters.

Yes. Just on that last point, sort of the economy. But I guess also you are embracing a streaming future now. You've got a compelling proposition and streaming as you've had in the last couple of years. And that's obviously positive for the future. Do you factor much in the way of trade down risk into your guidance?

Well, I'll let you talk about the numbers. But look, we recognize that where the longer-term trends are going. And we're focused on making sure that we can run a business that will be profitable, serving customers in the way in which they wish to consume content. We've said consistently over the last year and a bit, that we are not worried about cannibalization risk. That's not anything that we ever talk about internally. Customers are free to take the service from Sky in the way that works for them. The reliability, quality and ease of use of our satellite service will continue to provide a very strong compelling reason for people to take it. And it should not be underestimated. It provides a service that large parts of New Zealand still is the only reliable way to receive programming. So we don't focus on what the alternative -- what the danger might be if somebody is switching between our services. We just want to make sure that all New Zealanders have access to it.

Just on operating costs -- just on operating costs, the midpoint of guidance allows for $36 million of savings on reported costs. Now clearly, there were a lot of nonrecurring items in '21. So it looks closer to flat on '21 on an adjusted basis. Obviously, allow first the rugby costs going up. Can you just sort of talk about I guess going back to the May presentation, I think there was reference to a pool of savings that was quite large. Now that was over operating cost and CapEx, just where your opportunities are potentially in FY '21 to do better on the cost front, in terms of beating guidance and just what you're allowing for things like the RugbyPass losses, what direction they'll go on or go in '21?

Yes. Look, there's 4 main cost areas that will impact on FY '21, and in no particular order, there's obviously some savings that we're getting through our personnel costs, that we've quantified that. So that's -- we expect that to be about $10 million after adjusting for the redundancy cost. The second big areas are the broadcasting and infrastructure line. So one of the reasons we bought Lightbox was to get scale on to platforms. And we're also looking to consolidate across Sky Go and Sky Sport Now and RugbyPass. So there's some platform savings that come from consolidating those all on to our cloud-based service that would stood up. There's also the benefits that will flow out of the satellite new arrangement with Optus, the new pricing and contract kicks in. So we get some benefit out of that. And then you're into the sports world, which were the major cost pools that we referred to in the capital raise. They are driven mainly by our things outside ours and even the sports partners' control, right? They're generally driven by what's going on with COVID and how each of the governments around the world are responding on that. So that's the watching space. But we do think there will be some sports that are impacted, and continue to be impacted. So we'll just work with those sports partners to make sure that we get as much high-quality content for their fans and our customers on to screen. So -- and those will be the 4 big areas that we're focusing on cost control over the next 12 months.

And so on the savings that you make there, because like I said, on an adjusted basis, OpEx is almost flat. Are those savings targeted at offsetting the increased RugbyPass costs kicking in through FY '21?

Yes. Correct.