Sky TV says Rio Olympics ratings picked up and met its expectations after a "scary" first weekend.

Sky Television has posted a 14 per cent drop in its annual profit, but chief executive John Fellet pointed out the Kiwi firm was still making almost as much profit as United States giant Netflix.

In what may be its last year as an independent company, ahead of its proposed merger with Vodafone New Zealand, Sky reported a $147m profit for the year to June 30.

Revenues were up just 0.1 per cent at $929m and its combined satellite and internet TV subscriber base also rose by similar fraction to just over 852,000.

BUSINESS NEWS/Radio New Zealand Sky Network Television's profit has fallen because of higher costs of programming and preparatory work on its planned merger with Vodafone. The chief financial officer, Jason Hollingworth, says it's had to spend to secure programmes.

But revenues from its core satellite-TV business were down almost 1 per cent and Fellet cautioned investors that at this stage its internet-based services – which include entertainment service Neon and sport service FanPass – were "not as shareholder-friendly".

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Discussing the changes sweeping through the industry, Fellet said the internet-television services that Sky competed against were "priced too low to be commercially viable".

Netflix, which has almost 100 times as many subscribers as Sky around the world, was "significantly less" profitable than Sky with a profit margin of just 1.9 per cent, he said.

Last year Netflix made an annual profit of US$122m (NZ$167m) – not much different to Sky – on revenues of more than $6b. Its last quarterly profit was US$41m (NZ$56m), Fellet noted.

Sky warned investors in May to expect its subscriber numbers to drop by 20,000 to 830,000 in the year to June 30, in the wake of the conclusion of the Rugby World Cup. The warning sent its share price sharply down.

It forecast then that a 45,000 drop in its satellite-TV subscriber base would be only partially offset by a 25,000 rise in the number of customers who signed up to its internet television services.

There was gloom this month when a lawyer representing Sky in a court battle with Fairfax Media over Olympics footage, Julian Miles QC, said that Sky's television ratings for this month's Rio Olympics had not been as high as the company had expected.

Fellet said that had been an accurate statement at the time. "The first weekend was scary."

But he said Olympics' ratings then picked up and met Sky's expectations.

He said the pick-up could have been because Fairfax reduced its video-reporting of the games, or because the court case itself "maybe reminded everybody that the Olympics was on".

Investors have got in strongly behind the company's proposed merger with Vodafone NZ and Sky's shares rose 3 per cent to $4.83 in the wake of the annual result.

Sky is currently seeking approval from the Commerce Commission for the merger, which would see Britain's Vodafone Group emerge with 51 per cent of the combined telecommunications and pay-TV company plus $1.25 billion in cash.

Fellet said the competition watchdog was due to rule on the merged on November 11.

The $13.4m cost incurred so far in preparing for the merger accounted for just under half of this year's profit drop.

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