Sky TV's profits and revenues are down in a year that saw its proposed merger with Vodafone NZ fall apart.

Sky TV is refusing to press the panic button despite seeing its annual profits drop by a fifth and the loss of almost 34,000 satellite subscribers.

While Sky was clear that "video-on-demand" rather than "linear" broadcast television was the future, "now was not the time for a massive conversion of its core business", chief executive John Fellet said.

Sky has seen growing competition from the likes of Netflix, and broker Forsyth Barr forecast this month that Amazon could seek to wrestle the online rights to All Blacks tests and Super Rugby away from Sky to add to its Amazon Prime Video service.



But a significant number of Sky's customers still relied on its satellite-delivered service, Fellet told investors in a note accompanying its annual results.



READ MORE:

* Sky-Vodafone merger canned but businesses will keep working together

* Sky Television puts price of satellite service on pause

* OPINION: Sky TV needs to make grand gesture



In a surprise move in May, Sky axed daily and weekly passes for its Fan Pass internet sports TV service.

TOM PULLAR-STRECKER/STUFF Sky saw almost 34,000 satellite subscribers walk away.

But Fellet said it was embracing video-on-demand more than "any other New Zealand media firm", pointing for example to a feature that lets MySky boxes down programmes over customers' home wi-fi connections.

The pay-TV company reported a 21 per cent drop in its net profit to $116 million for the year to June, with revenues down almost 4 per cent to $893m.



Its number of satellite TV subscribers dropped to 705,652 at the end of June, down 33,800 over the year.

Despite the growth in competition from Netflix, Spark's Lightbox service and Amazon Prime Video, Fellet said "piracy" was Sky's biggest competitor.

"The big problem is the increasing ease by which pirated content is accessible," he said.

He noted Sky was taking legal action against two distributors of Kodi media players which are believed to be used by tens of thousands of New Zealand households to access premium programming for free.

He also criticised the news media for "taking clips of the best parts" of Sky Sports and publishing them online.

Stuff publisher Fairfax NZ, MediaWorks, NZME and Television New Zealand are defending a lawsuit from Sky TV over their use of sport clips which they say is allowed under the "fair use" provisions of the Copyright Act that relate to news reporting.

The Commerce Commission this year refused clearance for Sky TV to merge with Vodafone New Zealand.

But in one possible silver-lining for Sky, Spark chief executive Simon Moutter signalled on Friday that Sky's decision to drop a High Court appeal against the commission's ruling opened the door to a new relationship.

"Prior to the merger we never really saw ourselves as a competitor of Sky. We only went into full-on competition when they announced they were going to combine with our main rival," Moutter said.

"Now that is not happening, we would like to work with them."

Moutter said Spark was "clearly not that keen on the old set-top-box thinking".

"But Sky has got some great content and we would like to work with them on building their market for that in on-demand app-delivered services that we have some very good capability in," he said.

Sky has also signalled that it will seek to deepen its partnership with Vodafone, outside of the scrapped merger.

It has not ruled out a partnership with Amazon, as an alternative to any battle between the companies for future online sports rights.

Sky shares were trading down 1.6 per cent at $3.13 at 11am, having fallen by 30 per cent over the course of the year.

Vodafone NZ on Monday reported a profit of $40 million for the year to March, turning around a $18m loss.

The bulk of Vodafone's profit boost was thanks to a $35m drop in finance costs that followed a move by its British parent to inject more equity into the company and to reduce the interest rate the subsidiary has to pay on internal company loans.

Vodafone denied the financing changes were in response to pressure from Inland Revenue and the tax department itself has declined to comment.

* Comments on this article have closed.