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

Thank you for standing by, and welcome to the Sky Network Television Limited FY '24 Interim Results Briefing. [Operator Instructions] I would now like to hand the conference over to Ms. Sophie Moloney, Chief Executive Officer. Please go ahead.

Kia ora [Foreign Language] Howdy, mate. Hello, everyone, and welcome to Sky's 2024 interim results briefing. Thank you for taking the time to join today's call. I'm Sophie Moloney, your Chief Executive; and I'm joined by James Marsh, Sky's Interim CFO. I'll start today's presentation with an overview of what we have achieved in the first half, followed by a look at our performance in key parts of the business. James will then take you through the numbers in more detail before I take you through the capital management decisions announced today and the outlook for the period ahead. We'll then hand back to the operator and open the lines for your questions. So turning to our half year highlights. The business has performed well. Revenue grew by 4%, and we've recorded double-digit growth in both EBITDA and NPAT. We did see some softening in customer numbers that's essentially due to content challenges in Neon that I'll touch on later. The key point to make here is that despite that and the broader economic conditions, Sky is continuing to deliver strong results through execution of our strategy. That sustained growth trajectory has given the Board confidence to increase the interim dividend to $0.07 per share, raise dividend guidance for the full year and announce a new $15 million buyback program. As you can see on Slide 4, in the first part, we've done a great job delivering against our strategy. We have showcased outstanding sports content to New Zealanders, including several World Cup events. We've achieved a significant 14% lift in employee engagement and as well as launching Sky Pod to the wider market, we've revitalized our free-to-air strategy with the launch of Sky Open. At the same time, we've done what we said we were going to by strengthening our advertising capability. And not only have we delivered the cost savings we promised, we have also optimized our installation CapEx, which means that the period of higher investment will start to reduce in FY '25. Turning to Slide 5. I'll draw out a few key points from the bridge. We've grown revenue across all the critical growth engines of the business with an overall increase of 3.7%. Sky Sport Now has done a great job of leveraging the incredible sporting content we've had to offer, and I'm particularly proud of the increase in advertising in a contracting market. Broadband has continued its consistent growth path. And in the round, the softness in Sky Box and Neon was significantly outpaced by growth in the other lines, delivering an overall increase of $14 million. Looking at the movement in EBITDA on the next slide. The increase is mostly driven by the revenue growth we've just discussed. The cost of growth category is directly linked to supporting net revenue growth in broadband, advertising and Sky Sport Now. Like most businesses, we've seen some inflationary impact through pay rises and in other categories. And we also took the positive decision to invest in our people. We're showing a programming cost increase here of $3 million, but you can see that we've also made savings that put the overall increase at less than $2 million. Those savings are part of the $6 million of ongoing savings in the first half through a number of initiatives. Most significant within that is the $3 million net savings from the organizational changes we implemented in FY '23. Importantly, we're on track to deliver the $6 million of annualized savings we said at the time. Back in August, we shared our 3 priorities for FY '24, and I'm pleased to report that we've made positive progress against all of them. As we've touched on, our investment to lift employee engagement is already making a difference with a hugely significant 14-point uplift in the first half. The work to develop our purpose and our investment to boost the skills of people leaders is also having an impact. There will always be more to do, but I'm really happy with the improvements we've already seen. On the second priority, while we've made progress on rolling out the new Sky experience, it hasn't gone entirely to plan. We made the conscious decision to slow the new Sky Box rollout to prioritize resolving some final teething issues. At the same time, we improved the service experience and streamlined the logistics such that we now move to a program of product enhancement that is lifting experience further. With the long game in mind, taking the time to reset was an important and worthwhile action. It means that the take-up was slower in the half with 58,000 boxes in use, as we've shared today, but the highest satisfaction levels being reported by our customers is giving us confidence. We've been actively in market since earlier this month with a new Sky Box campaign and a fresh offer that's showing early positive signs. That's the case too for the Sky Pod, which was made available to all New Zealanders since the end of last year. The third of our priorities, creating new revenue streams, has got off to a great start. The strategic choice to strengthen the team and our technical capability is already paying off with a 12% increase in revenue in a market that's fallen by 16%. The team were able to quickly stand up new innovations and format integrations that were particularly on display during the Rugby World Cup. And the reaction from advertisers and agency buyers have been hugely encouraging. And although the market faces challenges, we see significant long-term opportunity ahead. Turning now to Slide 8 and a reminder of our significant presence in the New Zealand market through a multi-platform strategy that's delivering for customers, partners and investors. A key competitive advantage is our diversified platforms and products, which enables choice for customers while maximizing the value of our content investment. With over 1 million paying customer relationships and reaching 4 out of every 5 New Zealanders, we believe we're well on the way to being Aotearoa NZ's most engaging and essential media company. And while we are by no means complacent, this portfolio effect is contributing to our resilience in these tougher economic times. We can't talk to our competitive advantage without talking about our unrivaled aggregated content offering because that's our core purpose. That's why we exist: to share stories, to share possibilities and to share joy. We had a phenomenal lineup of sport in the first half, including the hugely engaging NRL competition, featuring our very own Warriors. But we're not just about sports. We're also about an amazing array of entertainment content. I'll discuss shortly the impact of the U.S. industry strikes on Neon, whereas for our Box business, there's been less of an impact given the wider variety of payment content available through our packages, including news and factual, movies, kids programming and of course, our super cool Sky Originals content. Moving then from our strategic advantages to the operational performance of the business in the first half. Starting on Slide 11 with Sky Box and Sky Pod, and there's been a small decline in revenue of 0.8% compared to a year ago. This is simply due to lower opening customer numbers and net customer loss, which we largely made up for through stronger ARPU now sitting at over $82.50. Most of that increase was driven by carefully considered price raises and higher level of sports package penetration. Despite our reduced new Sky Box marketing activity, you can see on Slide 12 that customer acquisitions on a like-for-like basis were up slightly from H2 of FY '23. And I'm pleased with the reduction in disconnections and consistent year-on-year churn rate, particularly at a time when we know household budgets are under pressure. Importantly, we've maintained discipline on margins when it comes to acquisitions and retention offers with a 45% reduction in discounts. Turning now to our streaming business, beginning with Sky Sport Now on Slide 13. It's been a phenomenal period with new records set for revenue, ARPU and customer numbers off the back of a particularly strong content lineup. The 45% jump in revenue included strong transactional pass sales and the benefit of price increases. The strength of our content continues to attract new audiences with 25% of year-end customers being new to Sky Sport Now. As expected and consistent with what we saw last year following the Men's FIFA World Cup, customer numbers have pulled back from those highs. But I'm excited to see the return of our major competitions with an incredible sellout crowd in Christchurch for the Warriors' preseason game last weekend and the much anticipated rematch of the Super Rugby Pacific final between the Crusaders and Chiefs kicking off the Super Rugby season tomorrow night. On Slide 14, you'll see that Neon's performance has been impacted by the flow-on effect of the U.S. writers' and actors' strikes that delayed the arrival of key acquisition-driving titles, which are the lifeblood of entertainment streaming services. This leads to reduced customer numbers and a small impact on revenue. The team has done a great job in keeping customers engaged, and we expect the progressive arrival of key titles to drive customer win-backs and acquisition opportunities in the calendar year ahead. We launched our Neon basic tier over 18 months ago with our strategic road map in mind. And so last month, we repositioned this tier to include a light ad load and at the same time, we upgraded to HD delivery and added a second stream. Our standard tier on Neon doesn't have an ad load, although a static ad appears on pause, consistent with other players in the market. While growth has been slower than I would like, Sky Broadband margins have continued to improve, so we're locking in the games as we go. We closed the half with over 30,000 customers with an attachment rate of 6% and an attachment rate of 14% for Sky Box acquisitions. The 1 gig product remains extremely popular at just over half of the base, and we're seeing increased demand for our Fibre 50 product, which has quickly grown to 9%. It was pleasing to see that adding to our Canstar Customers' Choice award, Consumer New Zealand recently rated Sky Broadband highest overall for broadband satisfaction, including the highest rating for speed and reliability. Turning now to Slide 16, and our commercial business is tracking positively with consistently strong revenue. The accommodation segment is moving into new opportunities through an innovative accommodation solution and partnership with Hibox and new property developments coming on stream. The licensed premise segment is also performing well. Our tiered pricing strategy is opening up opportunities to add smaller venues, and ARPU continues to grow. I've already touched on the things we've been doing in the advertising space to grow our share of the significant revenue pool. And on this slide, you can see how that's playing out with the upper chart showing Sky's impressive jump in revenue and a market share that's climbed 13%. Below that, we've charted the total market revenue for TV advertising, and you can see that for the same period, this fell by 15.5%. As I've mentioned, we launched into the digital advertising space in January through Neon, delivering the only SVOD advertising opportunity in our market, which is attracting over 50 top-tier brands. This is another important step in the execution of our strategy that takes us into the fast-growing digital advertising revenue pool. And with that, I'll hand over to James, who will take you through the numbers in more detail.

Thank you, Sophie. Now looking at our overall performance. We're really pleased with the numbers as we've delivered a positive set of figures for the period in all of the headline metrics. Our revenue is growing at a faster rate than our costs, hence expanding our margin. We have executed against our cost agenda, delivering savings to reduce our cost growth. This has flowed to good EBITDA growth and despite a step-up in depreciation, good profit after tax growth. This has resulted in solid cash flows. We have booked 2 small adjustments to the figures with minimal net impact to the profit and loss account. Now to move to more detail. Firstly, revenue. Sky has had a strong strategic focus on growing revenue, and we are seeing the fruits of this building over a number of periods through good streaming performance, growing new revenue streams in broadband, reinventing our advertising propositions and a solid performance in commercial and Sky Box. Sky Box has remained relatively consistent through this period, supported by good ARPU growth as Box customers have slowly declined. 2 years ago, Sky Box represented 70% of our revenue. Now it's 64%, showing our diversification of our revenue streams. The streaming and broadband revenue stepped up by $23 million in the last 2 years alone. We are also now seeing the benefits of the focus on advertising showing growth despite a much tightening market. Our focus on expanding revenue is coming through in a healthy trajectory of a 3-year compound growth rate up 3.5%. Now moving to costs. Our costs have shown steady increases, but we've been pleased to see a moderation of this growth through a combination of benefits from last year's transformational cost initiatives that have flowed into this financial year and a steady focus on programming cost optimization. Our programming costs include the full period impact of new rights deals, where we have secured critical content, including NRL, Formula 1 and World Rugby. This has been offset by very strict assessment and choices of content, lower methods of content production, a delay in output from the industry strikes and significant savings in our programming operations costs as we transform the way we do this to a much lower cost model. That focus kept the year-on-year increase to under $2 million and came in at 50.4% as a percentage of revenue, an improvement from 51.8% in the last period. We have seen a significant reduction in subscriber costs. This has been delivered by our transformation of how we operate our call center as well as outsourcing and transforming the way we manage our logistics processes. Our broadcasting and infrastructure costs stepped up as a result of the growth in broadband customers and also greater cost of platforms driven by the growth in Sky Sport Now. It is worth saying that we are seeing an enhanced margin as we continue to grow in our broadband journey. Our other costs stepped up due to considered investment in advertising capabilities. Now moving on to CapEx. Our CapEx investment continues at its inflated level as we move from investing in box development to the investments in box hardware and now rolling them out to customers. We have focused significantly on assessing the process for how we roll out the boxes. We are focusing on lower cost methods to ensure we get the boxes into customers quickly and efficiently. The 95% self-install rate we've achieved in the first half is higher than we had originally anticipated, resulting in much lower CapEx investment costs than expected. This will deliver some benefits this year and will have far greater benefits next year as the higher initial levels of new box purchases reduce. While CapEx will remain elevated, it means that overall CapEx will start to reduce in intensity during FY '25. We have also invested in other growth CapEx this year, including advertising technology and new feature developments to Sky products. In addition, we have built strong controls to manage our levels of maintenance CapEx. Now finally, moving to cash flow. Despite the heavy CapEx investment, we are pleased to deliver a positive free cash flow driven by our improved earnings. Our working capital remains negative largely due to prior period content payments. We expect this to stabilize into the next financial year. CapEx payments are higher due to timing differences on payments that resulted in increased CapEx cash flow in the first half of 2024. We had a much lower level of share buyback than anticipated due to pausing the program during the period of the NBIO that limited our ability to buy shares to just 20% of the available days in the half, [ halving ] the full year dividend payment for total distributions in H1 to $15.5 million. And finally, we closed out the period with a cash balance of $47.4 million. Thank you. And now passing back to Sophie.

Thank you, James. Great job. Sky's Board is ever mindful of delivering returns for shareholders. Our strong first half performance enabled an increased dividend of $0.07 per share. And the ongoing confidence in cash generation is behind the increase in full year guidance, now raised to at least $0.175 per share. The combination of Sky's cash generation and a healthy balance sheet also means there is opportunity for additional capital management actions. The Board retains its conviction that Sky's shares remain undervalued and has, therefore, approved a new share buyback program for up to $15 million. This will start immediately following the conclusion of the current 12-month program, which will end on 31 March. So to our outlook and guidance for the full year. The progressive return of acquisition-driving content suggests a gradual rebound for Neon during the calendar year, and we're also cognizant of the overall impact of increased economic headwinds. This has led us to update our FY '24 revenue guidance, which is now forecast to be at the lower end of the range provided back in August. That said, we remain on target to deliver FY '24 EBITDA and NPAT results in line with our original guidance numbers. And as James mentioned, while CapEx will remain elevated, we expect CapEx intensity to begin reducing during FY '25. Looking further ahead, we're confident in achieving the 3-year targets we communicated at the time of our FY '23 results. The core of these involves growing revenue ahead of costs to deliver margin growth and the reduction in CapEx intensity that we're working towards. Supporting these financial metrics are clear targets for lifting employee engagement and customer satisfaction. All are important. And in the first period of our 3-year journey, we're tracking well, and we're already ahead in some areas. We will provide more detail on our progress at the full year. Suffice to say, we remain focused on delivering against our strategy and building on the execution momentum of the first half. And with that, I'll now ask the operator to open the line for questions. Thank you.

[Operator Instructions] Your first question comes from Arie Dekker with Jarden.

First question just in terms of the set-top box rollout. I think you noted 58,000 in the installed base of the new box at the half. What sort of time period are you sort of seeing for the rollout of that? Like is it going to accelerate over calendar year '24? And just also a bit of an indication of what inventory levels you're sitting on just as we sort of start to think about how that -- how quickly that CapEx intensity reduces.

Thanks, Arie. We -- yes, we're excited to be now really going after this opportunity for our customers. So we will expect to see more penetration of the new Sky Box into the base in the coming couple of calendar years. We're not talking about the overall numbers that we had. But obviously, we had an ordering schedule. And when you're dealing with significant overseas suppliers, you don't want to slip off that ordering schedule. So we're in a good place in terms of inventory. We will look to give more information on that at the full year.

Yes. So you're not giving any guidance as to how much CapEx will fall off in '25 at this point.

No, not at this point.

Okay. And then the investment you've made, the other growth investment -- because, I mean, you provide quite aggregated stability now on your CapEx. But can you just -- what sort of level of investment was there in the ad platform? And will that continue over second half and into '25? Or is that pretty much done?

I'll get James just to give you a bit of calendar year. Thanks, Arie.

Yes. So we effectively continue in terms of the overall range. And so in terms of -- as Sophie just said, we're not looking to in terms of guide in terms of CapEx. Although it is clear now that this current financial year is effectively the peak year in terms of absolute CapEx. And overall intensity will improve next year, but not -- we're not looking to guide at this point on that. In terms of ad tech, I think that would be fair to say that, that is a journey in terms of the amount. So we have been investing. And it isn't a large amount of the CapEx in the great scheme of things. So that is just a steady amount and really as we work on platform by platform and build the integration and then build further capability. And then linked to ad tech is our data investment, which, again, is a steady investment, has been over the last couple of years. But when it comes to the larger, I would say, volume of the steps and the movements, it is driven predominantly by box purchases.

Yes. And then just on Sky Sport Now customers, just sort of doing some back-of-the-envelope, sort of trying to get a sense of how much of that 206,000 base is transactional versus the recurring customers that inform your ARPU disclosure there. Would it be fair to say that sort of circa 1/3 of those customers are transactional? And if that's sort of the case, I mean, clearly, sort of getting -- you've got well over 125,000 sort of recurring Sky Sport Now customers now. Would I be interpreting that right?

Sorry, Arie, just say that last little bit again. The microphone cut out...

I'm trying to back out revenue by looking at the ARPU you're reporting for recurring customers. And clearly, we can sort of see the ARPU you're sort of generating through the prices. Just trying to get a sense of how much of that 206,000 customers at the half that you're reporting are transactional versus recurring.

Yes. I think we haven't given that level of information at this stage, Arie. So yes, we're not going to break that out for you. I understand why you're asking. I suppose, overall, I'd say the trajectory with Sky Sport Now in terms of customer numbers and the ARPU uplift in overall revenue is where we want it to be based on our full investment. So -- but we can look at the full year as to how we break out further.

Sure. No, I mean, that's good. And then just turning to Neon. I'm just trying to understand a couple of things there in terms of where it might go to from here. I mean I guess the first question is -- and it's early days sort of thing. But have you seen much trade down to the ad tier post implementation of the price changes and introduction of that tier?

I mean we're really comfortable with the way that both of those products are tracking, albeit the overall numbers are not where we want them to be because we know we haven't had the steady supply of those acquisition-driving titles. But the intention always was to make sure that, depending upon the household wallet or the individual, we had a product that they could secure. So again, it's not something that we're breaking out, but you can kind of see that we've got a significant win-back pool to go after when those titles come back, and you can kind of see that the ARPU is pretty steady.

Yes. And then just on the timing for those titles, and I may have missed it, but what's sort of coming in terms of win-back sort of titles?

Yes. So look, House of the Dragon is one we're excited to welcome back. We just don't know if it's going to be -- unfortunately, I can't dictate the schedule by our financial year, Arie, as much as I'd love to from Aotearoa. But we're expecting that this winter is the best we can say at this stage, and then into FY '25, Handmaid's Tale, White Lotus, Last of Us and Gangs of London from our various studios. So we are anticipating FY '25 that's going to be positive. FY '24, we just have to wait and see what else is coming. That said, I do highly recommend the latest season of Fargo, if you haven't watched it, and also True Detective with Jodie Foster is super good.

Well, that was actually going to be my next point because, I mean, my own impression is actually the content on Neon through this period has actually been quite strong. So falloff in customers -- I mean, I guess, you do have those big marquee products that sort of attract customers. But would it be fair to say also that they sort of come in and they go pretty quickly around that content? Because it does seem like this base is sort of stabilizing now, doesn't it?

Yes. Look, I think that this is the -- overall, the streaming business model is a challenging one in that sense because consumers are being taught that they can switch on and switch off. That said, Neon has been, as you say, a consistent performer. We do have the depth of library there that does tend to retain customers. And so my expectation is that as these series return, we'll see those numbers get back to that more of a stable level from where they've been. But as I say, overall, this for me is the issue of the streaming business model that the big studios set us on this path, and now we all need to accept that consumers understand their capability to switch on and switch off.

Yes, which, I guess, is why Sky Sport Now's progress is quite pleasing. Last question -- I mean -- and congratulations because there's a lot to be pleased about in that first half result and particularly the EBITDA growth. But on the back of that, why is the guidance -- why haven't you upgraded the guidance, I guess, for EBITDA on what was quite a strong result and a guidance level that was obviously -- wasn't aggressive versus what you've achieved in the last couple of years?

I think we're in a really good place to be confirming guidance in a market where a lot of companies are not in that healthy position, Arie, and as you've seen, we have brought back revenue because we are seeing some of those impacts in markets. So I'm really happy that we are confirming that guidance. But more importantly, for our investor base that we have actually uplifted on the dividend front. So that's, we think, really positive for our investor base.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

I don't have a huge amount of questions following Arie was quite comprehensive. I wanted to probe a bit on Sky Sport Now, which was clearly the highlight of these results. And I guess similar to Arie, I'm just trying to figure out what are transient and what is a more stable customer base that you're building up. And I'm just curious if you'd be willing to share the behavior you're seeing around your marquee events like the football World Cup last year or Rugby World Cup now. Because I guess we got the Olympics coming up, which is sort of comforting, I guess. But then after that, at least to a non-super-sporty person like me, it looks a little bit empty in the sort of calendar year '25 and maybe back end of '24 as well, so you sort of worry seeing these big swings that Sky Sport Now could see a big swing down, just like it's seen a big swing up after the Olympics. So I'm just wondering if you could share some trends that you picked up from your data analysis around -- on these marquee events.

Yes. Look, you're spot on, Aaron, that marquee events attract a much wider base of customers. So those who are casual sports fans, which sounds like you might be one, will come in for those events and then decide if they're going to save the other content. That said, we think we've got an incredibly strong slate this year without -- with the rights that we've secured. So NRL and rugby are very important season-long competitions that attract very steady audiences. But you're right, the Olympics is going to be another exciting moment for us, which we're going to be showcasing across all of our products, including Sky Open. And I think we're really comfortable that people have the choice to come in and enjoy these big events. Of course, we hope that they then, as they're on the app, get to explore other content and we can hook them in. But that's just embracing the nature of streaming. And as you can see, the ARPU growth is really positive. And yes, we're not concerned, as you might be, about some of the swings from marquee events. We just see there's an opportunity to engage with a broader fan base. And that's also why we're looking with Sky Open to go out with Friday Night Footy and [indiscernible] Super Rugby because we think that's another opportunity to cross-promote to our other products as well as invite who might be more casual fans to those products, too. So a long way of saying, yes, we see an uplift with big events, but we're really comfortable with the way that we price our products.

Okay. Secondly, and this may not be your favorite question, but if I go back to your targets from '21, the main one that sort of haven't been achieved, I guess, is stabilize and then grow Sky Box customers. So you haven't included that in your target for the next 2 to 3 years, and I appreciate you got a revenue target. But when we look at this, there's various revenue and earnings streams we attach different multiples to. And I can't see any signs whatsoever that you're stabilizing and then growing your Sky Box customer base. And I appreciate you're replacing it with other revenue sources. But do you see a sign that this might happen? If you sort of elaborate on your '26 targets, do you expect to have more or fewer Sky Box customers than you have today?

Yes. So thank you, Aaron. I am super comfortable that you're asking that question. [ It means ] a huge amount, and the world has changed a fair amount since June '21 when we set those targets. I remain in a place of thinking that the Sky Pod in particular, which is part of our Box product, has opportunity to involve a broader audience than the current Sky Box solution, particularly that's IP only. But time will tell, Aaron, and you can continue to mark our homework on that one. That said, I do think the critical aspect here, Aaron, is about overall revenue growth. This is a portfolio effect. We're maximizing that content investment across all of these products. So I'm very happy that you will reference that at the end of the financial year as well. And what I will say is that the Pod, I think there's opportunity to engage and stay with a broader audience. But ultimately, I suppose what I want you to judge us on, and I think our investors will, is our ability to create operating leverage in the business, generate great free cash flows. And as a result, at the half year, we're uplifting the dividend and uplifting the full year guidance to at least $0.175. So that's the position I'd love us to be able to shift to. But that said, I agree with you at the end of the financial year, we can have that conversation about where things are at.

Okay. Final question. Just again, coming back to Arie's question on the guidance. If I compare the bottom end of the revenue guidance with the sort of bottom end of the NPAT guidance, it suggests to me that there is some expectations of cost growth or something in particular coming in, in the second half or maybe on the depreciation and amortization. So I was just wondering if James could elaborate or if you just left the bottom end of the range there as a "conservative" or if it's a genuine bottom end of guidance?

Look, it's a lower end of the guidance. But it isn't about being conservative. We're always conscious that these ranges are there for a purpose and to inform. The most critical aspect, actually, is the reflection of depreciation and amortization. So the biggest impact, and we've seen the lift as you will have seen in the numbers in depreciation, that's really entirely driven by the new box acquisitions. And we are depreciating the boxes as we effectively put them in the warehouse. And so that means we are -- we've lifted our depreciation. And as we get deliveries in because, as Sophie touched on, we're dealing with big suppliers here who deliver -- who do very large volume runs effectively. So as we buy those boxes in, that's putting upward pressure on the depreciation number. So you see the half and half, there is -- our expectation is that step-up in the second half in depreciation and amortization.

Your next question comes from Phil Campbell with UBS.

Sophie and James, I got 3 quick ones. Sophie, just be interested in your views -- I think Foxtel yesterday or today has just launched the Hubbl platform. And they have actually got -- they've got Stack and Save. As I'm assuming that's a mechanism to try and minimize people churning or pausing on some of the streaming products. I was just wondering, is that something that Sky would also look at, that type of product?

Yes. I think we -- look, we're always interested to see what our colleagues are doing across the ditch and around the world, and the idea of pausing subscription and enabling customers to stay with you is a very positive one. I think overall, Hubbl, we're -- our new Sky experience has a number of those features and capability going forward. So -- but yes, the Stack and Save, in terms of pausing subscription, if that's what you mean, yes, I think it's a useful tool, right, particularly in the streaming world.

Yes, yes. I suppose the second question was just -- you touched on Friday Night Footy. Just interested to get your views on that. So I'm assuming the kind of sports fanatics, well, obviously, they'll pay for live sports, whereas maybe more casual users will be happy to go on to Sky Open. I think there's about a 12-minute delay with the ads. So I'm assuming that when you've done these products, you're assuming there's not going to be a lot of churn on the fanatical side of it? Is that...

Yes. Look, I think -- well, you only learn by doing and innovating, but we -- yes, that's our assessment. And we've looked across at other events where we've gone out free-to-air. We see viewership rising across each of our products. But in this instance, if you're a league fan, we don't think the 20-odd games out of 200 is going to suffice. And same with Super Rugby, 19 out of 91 or thereabout. If you really love your footy or your rugby, we do think that the value that we give you through Sky Sport Now or Sky Sport will keep you. But look, we're going to learn, right? If we find that some of our customers are content with one game a week of rugby, well, that's also useful information as we look at our renewal process, too.

Yes. Okay. Awesome. And just coming on to the CapEx question. I just want to ask it in a slightly different way. Obviously, you've got these targets out there for '26. I think the CapEx intensity, the guidance here is 7% to 9%. I'm -- is it fair to say that if there's less CapEx intensity in FY '25, could we be moving more to the bottom end of that 7% to 9% range in '26?

Yes. I mean -- so we [ see up to ] 7% to 9%. I think that's always been what we see as our kind of normal run rate kind of level of CapEx. And clearly, ideally, you'd be at the lower end of that. It would be fair to say -- when we are now looking at our numbers in the current year, we're ahead of that range, predominantly driven by the boxes we're purchasing and then additional -- the CapEx we're spending on in terms of the satellites and satellite migration and those kind of areas. We do expect next year to be at an inflated level. What we are, though, targeting and working on that it probably won't be as inflated as we previously thought it would be, but we still expect it to be inflated. And so we -- but at a better intensity next year than this financial year. And then by '26, we're looking to return back into the 7% to 9% range. Clearly, where we sit in that 7% to 9% range, it's too early to tell in terms of that position. The key factor for that step-down is we're buying the bulk of the boxes -- actually new boxes this year, but we're still buying them next year. And we still expect to buy some in the future by getting demand to a more steady state. And similarly, we'll be past the satellite migration capital phase as well. And as we touched on earlier, there is a level of investment in growth projects that we're making last year, this year and next year that will carry on, but again, I'm hoping at possibly a slightly lower level that can take us back to that more normal range of CapEx.

[Operator Instructions] Your next question comes from Brian Han with Morningstar.

On Sky Broadband, you say somewhere that margins improved. Are you talking gross margins or EBITDA margins?

We're talking predominantly when we say that directly attributable cost margin. And so that would be somewhere between gross and -- I guess, between gross and EBITDA. So what we're not doing as part of that is looking to -- we haven't attributed any cost as part of that analysis. So trying to look at between products. So we're looking at all the costs that we can see that are directly attributable to broadband. And really, it's a reflection on as the base grows, some of the initial discounts that we'd offer customers early on unwind, and so the percentage of discounts, it's a smaller percentage of the total base overall. And also, as time goes by, we're able to look at the cost to optimize the costs and drive scale efficiencies. So it's slightly in between the 2, I would say, in terms of -- but what we're not doing is attempting to allocate any kind of -- any overhead costs effectively to that.

Okay. And has there been any change in the way you guys look at this broadband business in terms of its benefit to your Sky Box streaming or just as a stand-alone business on its own?

No, no change in the way that -- this is all about driving value for our Sky content customers, if you like. Particularly on Sky Box, we see a great opportunity to bundle with Sky Pod, especially into urban dwelling centers. So no, no change on that front. It's very much about supporting our core business.

Okay. And finally, Sophie, your interest in getting more into the advertising space, does that ambition extend to assets in Australia? Or is it purely in New Zealand?

We're very focused on the New Zealand market.

There are no further questions at this time. I'll now hand back to Sophie for closing remarks.

So just for me to say thank you to everyone for joining today's call. And also, thank you to all of my teams, who have been working incredibly hard to deliver these results for our investors, whom we look forward to speaking with in the coming days. So thank you all, and kia ora.

That does conclude our conference for today. Thank you for participating. You may now disconnect.