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Reports of my death are greatly exaggerated- Mark Twain. TV viewing in NZ is at an all time high. Consumers have more channels than ever before and better content than ever before. In many ways it’s a second golden age of TV with the best writers and producers making shows like Game of Thrones and Mad Men. Even in UK –where second devices are heavily penetrated the TV is still extremely dominant. The BBC iPlayer accounts for just 2% of total BBC viewing. Only 0.2% watch on iPlayer exclusively. TVs are also getting bigger- Given the choice of 52 inch HD TV or watching their favourite show on a iPad or phone consumers will choose the big TV in the living room where they can.

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However we understand that companion devices present a great opportunity for us to add value to our subscribers and potentially offer us ARPU and advertising

• pportunities.

We believe the best way forward is a marriage of linear and on demand content giving subscribers a seamless entertainment experience wherever they may be. Consumers don’t, and shouldn’t care too much about the ”how” of content delivery. We do of course . My colleague Matt Orange will give an overview of our product roll out later in the presentation.

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Why does TV still rule? At a fundamental level it entertains better than anything else. Whether you want to be inspired, excited, educated of just veg out after a long day SKY is the only place that gives you those options. Free to air only offers a limited choice. Subscribers look for just a couple of “great” TV experiences each week to justify their SKY subscription. We provide great experiences through our channels and programming but also by co- creating value with our subscribers through tools like MY SKY. In the future we will add even more value through better content discovery tools.

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We are pleased that we have been able to grow subscribers in what has been very difficult conditions for Pay TV operators right around the globe. FY12 however was a unique year for SKY. The Rugby World Cup 2011 in NZ gave us an unusually high number of new subscribers in the first half of that financial year. During the first half of this year we have seen an “echo” of that boom impacting net gain. But that’s not the whole story. We expect this to be a temporary phenomenon as the effect of churn from RWC 2011 has now faded from the business. We also anticipated having our low cost, IGLOO, service in market. In anticipation of IGLOO’s launch SKY withdrew aggressive direct marketing offers in areas where we believe IGLOO will give us a longer lifetime value than a on/off high maintenance SKY subscription. New Zealand has also experienced an exceptional summer. Having said that the economy is still the biggest influence on net gain and any improvement in that area can only improve our outlook.

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Interest in Pay TV remains strong. We have been looking at interest in the category for 20 years and it’s a familiar pattern. As we add more subscribers, better content and better tools for adding value to our subscribers more NON subscribers , who previously rejected SKY move towards becoming customers. From a marketing perceptive it’s straightforward. Using our unique content story we; Create interest in the category Create desire in subscribing Act on that desire by ensuring we get the order when we get the opportunity

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ARPU continues to grow through … Our ability to increase the price of the basic service and to increase value through new programming and channel additions

• MY SKY penetration increases
• HD ticket
• Multiroom
• Growth in premium channels such as SoHo.

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The dotted line shows where we think our MY SKY net gain will land this year. We have been very aggressive in migrating customers to this box over the last few

• years. We still think we can grow MY SKY but we do not wish to deeply discount in order

to continue the growth at current rates.

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Continue our successful formula

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Good afternoon, my name is Matt Orange. I’ve been at SKY for 7 years, leading

• ur business strategy and planning function.

Over the last two years, I’ve also been involved in establishing a product innovation team that, to date, has developed products such as iSKY, IGLOO and the SKY TV Guide App. 21

At SKY we see product innovation as a key way to enhance the overall customer experience. We know that one of the best ways to attract and retain customers is to ensure they always have something good to watch. So a big focus we have is on making it easier for customers to discover content that’s relevant to them. New technology is expanding the possibilities for showcasing and discovering

• content. It’s also expanding the options for accessing and consuming content, as

the number of internet connected devices continues to grow. Increasingly our customers expect to be able to access their SKY subscription anytime and anywhere they wish. Today I wanted to talk about a couple of developments we have underway. We hope to have these available in the market within the coming 12 months. We believe these developments will significantly enhance the SKY customer experience as well as the value of SKY’s business. 22

The first of these relates to our flagship product – MY SKY As you all know, MY SKY has been an excellent product for SKY, with its ability to deliver lower churn and higher ARPU. At the end of December there were 424k MY SKY subscribers, representing 54%

• f our customer base. We expect this to continue to grow over the coming years.

Within the next 12 months we are working on a major software upgrade to MY

• SKY. This software upgrade will be delivered seamlessly over the air to all MY SKY

units deployed in the field. The software upgrade will deliver some significant new enhancements. 23

The change that customers will first observe will be a more modern looking user interface. Today, the MYSKY user interface you may be familiar with looks as follows. Once a customer has received the new software it will look more like this. The new user interface will be delivered in High Definition quality. There will be enhancements to search, navigation and usability. These enhancements are intended to help put customers more in control, as well as make it easier for them to discover content. The most prominent enhancement will be the addition of a new video on demand offering that will be available once customers get their MYSKY Internet- connected. Now, we already offer a limited video on demand service via MYSKY. This is delivered via the satellite to the MYSKY hard-drive. This technology enables 20 to 30 new release pay-per-view movies to be offered at any time. 24

The new on demand offering will take advantage of broadband-based delivery, enabling SKY to significantly expand the amount of on demand content that can be made available to our customers. 24

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The types of on demand programming that SKY will look to offer falls into four main categories. The first relates to catchup VOD, which is programming that has already been broadcast on SKY and which is then made available on demand. Access to catchup VOD is free, depending on your existing subscription. So for example, if you’re a SKY Sports subscriber and you missed the All Blacks test last night, you’ll be able to access the game shortly afterwards via the on demand section. The second category is referred to as entitlement VOD. This is additional content that is made available as a free value-add, also depending on your existing subscription. For example, if you’re a SoHo subscriber who loves Game of Thrones, you could watch Seasons 1 and 2 on demand, at the time we premiere Season 3 on the SoHo channel. Both Catchup and Entitlement VOD are about enhancing the value of a customer’s existing subscription and are aimed at improving retention and lowering churn. 26

The third category of on demand content is subscription VOD. This is additional content that a customer may choose to subscribe to for an additional monthly fee. For example, SKY may decide to license a genre based catalogue e.g.. Westerns that it delivers via the on demand service instead of as a linear broadcast channel. The final category of on demand content builds on SKY’s existing Box Office

• ffering, whereby customers can rent access to additional programming on a pay-

per-view basis. Both Subscription VOD and Transactional VOD extend the ability for SKY to grow ARPU. 26

There are several reasons why a major upgrade to MYSKY makes sense now. Firstly, the software we plan to utilise has been successfully deployed at several

• ther major broadcasters and we believe it is now sufficiently stable and mature

to deploy to our customers. Secondly, now that we have over 50% MYSKY penetration, we have a large base

• f customers who can benefit from the enhancements we plan to deliver. Our

expectation is that this development will result in further improvements in MYSKY churn and ARPU. Thirdly, broadband is now sufficiently advanced in New Zealand, with data caps and speeds continuing to increase and the rollout of UFB well underway. We believe that internet connecting a large proportion of our MYSKY base will go a long way towards increasing demand for faster speed broadband in NZ. As part of this upgrade, we’ll provide customers with easy options for getting their MYSKY box internet connected. This investment is also intended to extend the life MYSKY. As a result, we plan to defer any major investment in a next-generation MYSKY replacement for at least the next 3 years. 27

Such a replacement may look to take advantage of technologies such as ultra HD and cloud-based PVR. However, we believe that such technologies are still some way away from full commercial maturity. 27

The second major development that we have in the pipeline over the coming 12 months is the ability for our customers to consume their SKY content on a range

• f tablets and smartphones.

This is about taking SKY beyond the living room (where we hope you’ll have MYSKY) and into the handbags, manbags and pockets of hundreds of thousands

• f SKY customers.

We’ve followed the launches of similar propositions in other markets and have gained useful insights into how these products have performed. We see that this proposition will increase the opportunities for our customers to consume content and we know that the more content our customers consume, the more value they perceive from their SKY subscription. A similar relationship exists for customers who have MYSKY technology, who on average watch more television than any other group in the country. The uptake of smartphone and tablet devices continues unabated, with over 54%

• f consumers having a smartphone and 29% having a tablet device.

This initiative will build on our existing non-STB proposition, iSKY, which today delivers live and on demand content to PC’s and laptops. 28

We see the extension to smartphones and tablets as a logical progression and highly aligned to our objective of delivering the best content anywhere, anytime. We see the availability of a broad content lineup that includes live sport, movies and TV series as key to enabling a broad mass-market adoption of this service. At launch we hope to have 10 of our best channels available across laptops, tablets and smartphones. We expect to be able to deliver this project for a relatively modest Capital cost. We see the initiative as a tool for improving overall value to subscribers, which in turn is expected to result in lower churn. 28

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We don’t think so. Aware of value of each piece of content via CPVH metric. Prepared to walk away from uneconomic content. Overseas markets have other unique drivers. Sports bodies may well elect to distribute content via OTT. Probably to other territories where the broadcaster relationship is not strong. Strong relationships with Sports bodies mean that the best way to monetise content is via pay TV. We welcome new entrants. There is so much sport around that we cannot possibly show it all.

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I’m Travis Dunbar and I look after our portfolio of Entertainment channels This involves my team building, aggregating and managing a range of channels that SKY both owns and provides carriage for (in the case of pass-through channels) We do this for both Basic and Premium tiers and across a separate Movies tier and transactional services via PPV and TVOD On the Basic tier we offer broad entertainment channels These channels are branded and include syndicated series (CSI, Bones), exclusive first run (Spartacus/One Born Every Minute) plus a few locally produced series/specials On the Premium tier we offer local channels targeting upscale audiences (Soho, Arts) plus niche channels targeting foreign language (France24, Star Plus) and special interest (Country) 34

We have a select number of output deals that deliver key first run series for Soho (HBO) and Prime (CBS) We also take advantage of post Free to Air windows for series which have had a first run or which are syndicated We also have long-standing relationships with all the key Studios and key producers like the BBC, Viacom and Discovery Our strategic aims focus on:

• growing the base of our most valuable subscribers
• broadening the appeal and reach of our Basic channels
• expanding our reach across platforms and devices
• delivering the content our subscribers want, when and how they

want to see it

• closer release to US debut (“day/date”) as a way of combating

piracy in our market 35

We see the Movie tier as a continued core component of our offering SKY has achieved some of the highest Movie tier penetration rates in the world by offering both breadth and depth The tier comprises 4 main linear channels plus a separate tier allowing transactional purchase via PPV and TVOD We have a number of strategic aims for the tier that will allow us to offer it more broadly and target more specific genre appetites 36

I’m Martin Enright and I manage the Content Acquisitions team We look after the acquisition of Entertainment and Sports rights This involves my team in: negotiating and securing a wide range of one-off and multi-year linear content rights protecting these rights by implementing anti-piracy strategies agreed with rights owners working with other business areas to develop new products, in particular: securing “access rights” for multi-screen devices (iSKY) securing “extension rights” for a variety of extensions to our linear subscription offerings 37

The entertainment industry business model is based on a complex series of release windows – many of you will know this already For those that don’t – it’s a different model to Sports where generally rights are acquired in bundles or on an event-basis Generally there are 3 types of rights grants: (i) time-based – rights to exhibit content for a specific time period; (ii) technology-based – rights to distribute content via various platforms and formats; and (iii) geography-based – rights by territory and language SKY focuses on the first two rights types For each of these rights types, there are different cost models – some involve straight-out license fees (Movies packages) or revenue share (TVOD) and others are tied to our subscriber numbers (channel carriage) As an example, Movies in NZ are released in the indicative sequential windows model you can see 38

How this generally works is that a Movie will: (1) premier at the box office (2) before making its way to physical DVD sale (rental and retail- to-own) then (3) onto PPV and digital rental (4) then to Subscription TV (5) and finally to Free TV The first three windows generate transactional revenues and then fees flow from subscription or are backed by advertising (Prime) Performance in earlier windows gives us a way of estimating what Movies are worth in the Subscription window Two features about this model are worth noting: (i) there is an “after-market” forming around SVOD, which depending on the size and scale of the after-market, may advance in front of the Free window this is the space that players like Netflix are playing in and they typically aim for exclusive rights in that after-market (ii) digital/IP distribution means that the line between these windows is blurring and reconfiguring and, as a result, we’re starting to see

• verseas experiments with:
• some windows overlapping / reducing in duration
• other windows being divided or moved

Our headline strategy is therefore to: (1) secure content rights in clear windows for multiple distribution means and (2) where possible, brand the window and deliver content that our subscribers will value. This keeps it entertaining 38

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SKY Advertising Sales is responsible for generating revenue from airtime and sponsorship. SKY Television - 30 Subscription channels. Free to air channel Prime Monthly listings guide – SKYWatch Digital assets

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$2.164b spent on advertising in 2012.

• 0.6% decline in 2012

All Media

• 0.6%
• $15m

TV

• 0.6%
• $4m

Newspapers

• 7.2%
• $42m

Radio +0.4% $1m Magazines +0.5% $1m On-line +11.6% +$38m Television revenue declined year on year, but retained the top spot. Television’s maintained share of total revenue year on year – 28.4% Online is growing, but remains at 59% of TV revenue. International comparison: US – Online close to half TV spend UK – Online has passed TV Australia – Online 79%

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Historically big events such as sport have lifted total television advertising revenue and shifted share to the host broadcaster. Evident in the chart is the large decline in revenue during the 2009 recession. TV revenues suffered 6 consecutive quarters of year on year decline. The Rugby World Cup in NZ in 2011 helped TV revenue return to growth. The RWC event fell into 2 reporting quarters, averaging 3.55% growth across the two. SKY as the host broadcaster achieved 23% growth in the corresponding quarters. For the past three quarters (July 2012 to March 2013), TV revenue has declined year on year. The July to December decline was largely due to the previous year’s extraordinary revenue from the Rugby World Cup. In the most recent quarter television revenue declined -3.84% year on year.

In a declining market SKY has grown share. January to March 2013, total television revenue declined -3.84%. SKY subscription channel revenue increased 8.55% Prime increased 10.80% Combined, total revenue grew 9.40% in Quarter One 2013.

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Looking closer at Online advertising. Money spent advertising Online increased 11.6% in 2012 to $363m. Online advertising accounted for 16.9% of all advertising revenue in 2012. It’s important to look at the composition of Online spend when evaluating the

• pportunity.

Display advertising accounts for 30% of Online spend. Display ads include banner advertisements, video ads, sponsorships, email, Display ads in Facebook etc. Search & Directories advertising includes revenue from online Directories and Search engine listings. Search in NZ is dominated by Google, followed by Yahoo and Bing. Classified advertising includes revenue from ads placed to buy or sell an item or service. Classified includes Real Estate, Recruitment, Automotive, Personals and any other classified advertisements.

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In summary. Online is continuing to grow. The revenue opportunity is in Display, accounting for 30%

• f spend.

An increasing share is being spent with international sites via Ad Exchanges. In NZ the top 4-5 sites secure 80% of the total revenue. The large volume of traffic results in big discounting and low inventory prices. Outside of the big 4 or 5 there is a very long tail of unlimited inventory. The opportunity for SKY is to focus on growing Video / Pre Roll advertising on iSKY as rights become available. Television Our strategy is to continue to focus on growing our share of television revenue. Focus on SKY’s affluent, quality audience and unique selling points such as sport. The strategy for Prime is to grow revenue by monetizing our increasing audience share.

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I thought I would take the opportunity to cover a few of the more common financial questions that analysts tend to ask. To be clear, we are not providing new “guidance”. SKY updated its FY13 Guidance at our interim results briefing in February. 49

The degree of operating leverage in SKY’s business is a topic of interest to investors. While there are fixed costs in our business, SKY is required to continually invest in its business to grow its subscriber base. Our investment in content costs is a good

• example. The cost of a number of these rights is fixed (ie we pay the same

amount for Sports rights regardless of the number of subscribers we have). However, content costs have been maintained a 32-34% of Revenue over the last 6+ years as we have continued to invest in new content to attract new subscribers (eg Soho, Jones!, V8 motor racing, etc) Subscriber management costs also increase with the growth in our subscriber base plus CPI. Customer acquisition and retention costs also increase over time as a fairly stable churn % actually represents more and more activity as the total subscriber base increases. Technology costs are also under pressure, not so much from subscriber growth, but from a requirement for SKY to continue to invest in new services to grow its business eg HD, PVR, iSKY, etc So the message here is we don’t see EBITDA margins increasing significantly from the recent 39 – 40% levels as we continue to grow our pay TV business. However, EBITDA itself should increase as the Revenues grow, as a result of a growing subscriber base and ARPU increases. 50

We continue to get comments from analysts that SKY’s balance sheet is under geared. On the face of it our gearing does look conservative at 1.6x debt/EBITDA at 31 December 2012. However, our banks take a different approach and capitalise the leases we have

• n our satellite and on 2 of our HD broadcast vans. At 31 December, we reported

a debt/EBITDA ratio of 2.04x to our banks. In relation to SKY’s Dividend policy, the SKY Board regularly reviews its dividend policy and has been paying out around 70% of NPAT as fully imputed dividends in recent years. The Board has also paid two Special dividends of 25c and 32c in September 2011 and December 2012. SKY has paid a total of 89.5c per share in dividends since September 2011. The timing of the December 2012 special dividend was driven by concerns of a loss of imputation credits should there be a change in ownership. The exit of News as a 43% shareholder will also give the Board the opportunity to consider share buy backs as a capital management strategy. Share buy backs were not feasible when News owned 43% of SKY as a buy back would result in News creep 51

Analysts do have difficulty forecasting SKY’s depreciation levels. This chart shows SKY’s forecast depreciation schedule for its existing fixed asset base and also capital expenditure over recent years. There are a few points to note; SKY’s CAPEX has been “high” over recent years as we invested in a new digital TV station, HD and then migrated over 50% of our subscribers to MY SKY. Capex has been over $130m pa since 2009. MY SKY decoders are depreciated over 4 years and the TV station over 5 years. As illustrated, depreciation costs will start to decline in 2014 as this investment begins to be fully depreciated. We have given Guidance that capex for FY13 will be $90-100m. We said at the Interim results that this reduction is due to deferral of $30m of capex to FY14 (for MY SKY upgrade, TV station capacity expansion). We are not providing Capex guidance for FY14 today but not this will include the $30m of deferred FY13 capex, plus the usual capex for MY SKY growth and net

• gain. We have also said that we believe MY SKY growth will begin to slow in

FY14, which reduce will capex in this area. 52

SKY is an importer of TV content and is a beneficiary of the appreciating NZ$. Our FY12 results for example, reflected an average US$ exchange rate of 71.2c. SKY’s policy is to hedge out at least 12 months of our forecast FX purchases to protect us against short term currency volatility and to enable us to provide earnings forecasts. With an appreciating NZ$ our reported results will lag the market. For example in FY12, we disclosed that each 1c movement in the NZ$/US$ exchange rate would impact SKY by $NZ1.4m. With US$ spot rates currently around 83c, this represents earnings upside potential of $16.5m. However, as every business in New Zealand knows, the NZ$ is volatile. In my 11 years at SKY I have seen the NZ$ trade from 39c to 85c against the US$. SKY has managed to successfully operate through these conditions as over the medium term as we can negotiate our program deals to ensure we maintain an acceptable level of cost. 53

A number of analysts have queried the pay back on SKY’s investment in MY SKY. In straight financial terms we assess that the $476 cost (box + install, 75% migrants) pays back in cash terms in 1.9 years. The box is proving to be very stable and as Matt has mentioned we plan to enable the IP port in these boxes which will enable us to offer more services. Customer satisfaction is also materially higher amongst MY SKY subscribers, with MY SKY churn being 10.9% compared to churn on standard digital homes of 18.1% in the 6 months to 31 December 2012. 54

IGLOO was launched in December, 6 months later than intended due to problems with the stability of the box Since launch, the box has performed well. Subscribers are purchasing VOD content via IP, as well as PPV sports plus 10 linear pay TV channels December was not a good month to launch a new pay TV service. Retailers were in Christmas sales mode, followed by a fantastic summer We have reforecast our sales targets for the launch delay and are now forecasting 19,000 subscribers by 31 December 2013. IGLOO requires 40,000 paying subscribers to break even. We have recently appointed a new GM to IGLOO, David Joyce ex Telecom Wholesale, Orcon and Vodafone. 55

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