Sky hit with bill for hundreds of millions after advertising fiasco

Nov 03, 2024

Broadcaster reimbursing partners after miscalculating revenues as far back as 2017

Sky is facing a bill for hundreds of millions of pounds and deep embarrassment after it uncovered miscalculations by its advertising sales operation stretching back years.

The broadcaster is writing massive cheques to partners including the Hollywood giants Warner Bros Discover and Paramount as it scrambles to contain the crisis, The Telegraph can reveal.

Sky Media, which sells advertising slots on Sky’s own channels and those owned by third parties, underreported revenue owed to its partners from around 2017, industry sources said.

It means the failures predated the company’s £30bn takeover by the American cable giant Comcast in 2018, although they continued for several years after.

An internal inquiry into the fiasco has already led to the departure of some Sky Media staff.

The company and Dana Strong, its chief executive, have sought to keep the matter private. The reimbursements are said to have been properly accounted for although not specifically referred to in public filings.

The underreporting of revenue owed has fuelled suspicion of Sky among partners and undermined relationships that are crucial to its business. The company reported advertising sales of £1.2bn last year, from a total turnover of £10.2bn.

Sky Media is one of three television advertising sales houses alongside ITV and Channel 4. Both Warner Bros Discovery and Paramount, which owns Channel 5, may review their contracts with Sky after receiving reimbursements, insiders warned.

A Sky Media spokesman said: “When we became aware of an issue in relation to payments to partners, we acted decisively, conducted a thorough review process, proactively notified all partners, and are in the process of fully reimbursing them.

“We have made the necessary internal changes to prevent this reoccurring.”

The embarrassing blunder comes as Sky’s core pay-TV operation faces unprecedented pressures from the shift to streaming and in the wake of an operating loss of £224m in 2023.

Sky’s relationship with Warner Bros Discovery is already under significant strain.

The Hollywood studio is preparing to launch its own streaming service “Max” in the UK in 2026 after decades of exclusive pay-TV partnership. The shape of its future relationship with Sky is subject to increasingly fraught negotiations as both sides battle to navigate a technological shift without losing income or strategic advantage.

The plans raise questions over Sky’s stranglehold on new prestige TV releases and the future of the Sky Atlantic channel.

A long-standing collaboration with HBO, Warner Bros Discovery’s US broadcaster, which is home to dramas such as Succession and White Lotus, played an important role in expanding the appeal of pay-TV beyond live sport and in the 2010s. HBO titles have been the anchor around which Sky Atlantic has been built.

In summer Ms Strong said that “in every scenario, Sky customers will have Warner content on Sky platforms”.

New questions were raised in September, however, when Sky took the extraordinary step of launching a US lawsuit against Warner Bros Discovery, alleging it violated an agreement to work together on Harry Potter television projects. Sky claims its share of revenues would have reached hundreds of millions of dollars “at the very least”.

Warner Bros Discovery has rejected the allegations and linked the case to negotiations over Max, claiming the “lawsuit makes it clear that Sky is deeply concerned about the viability of its business were it to lose our award-winning content”.

Challenges are piling up for Ms Strong and Comcast, which swooped to snatch Sky away from Disney in a rare head-to-head auction. Brian Roberts, Comcast’s executive chairman, paid a price at the top of the market for pay-TV assets, which has proved much too generous.

Comcast has since written down the accounting value of Sky by $8.6bn (£6.7bn) and lowered its profile in financial reports. Following a management shuffle, Ms Strong no longer reports directly to Mr Roberts.

Warner Bros Discovery and Paramount declined to comment.