The Sky Network Television Ltd (ASX: SKT) share price has dropped 15.6% to $4.28 in midday trading, after the New Zealand pay TV operator forecast it would lose 45,000 residential pay TV subscribers by the end of June 2016.

Implications

That’s a big problem for Sky and the company has acknowledged that while it won’t have an immediate impact on the 2016 financial year (FY16) results, it will ‘adversely impact FY17 earnings’ compared to current analyst consensus estimates.

While the loss of those subscribers will be partially offset by a 25,000 increase in other subscribers, including to its Neon subscription video on demand (SVOD) and Fan Pass services (streaming sports channels), the residential pay TV subscribers generally pay much more for their subscriptions.

Sky’s Basic package (not including movies or sport) costs NZ$49.22 per month, with Movies and Sports addons respectively costing NZ$20.93 and NZ$28.29 per month extra.

Neon, by comparison, charges NZ$20 per month, while Fan Pass costs NZ$14.99 per day, with no long term contracts.

It clearly shows the impact that the king of SVOD, Netflix, is having on pay-TV operators and commercial television networks around the world and it’s not good news for them.

When pay TV companies want to charge 3, 4 or 5 times the subscription price for their basic service than for Netflix – which charges $8.99 a month for one device – and then around $20 for access to their movie channels, it’s easy to see why subscribers are dropping off.

What about the future?

Sky says it doesn’t expect the rate of subscriber loss to continue in FY17, with churn already reducing and the positive impact of subscriber numbers from upcoming major sporting events including the Rio Olympics and the Lions Rugby tour in 2017.

Implications for Australia

The loss of subscribers has negative implications for Foxtel in Australia. The Pay TV operator is jointly owned by Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS), but likely faces the same issues as Sky does in NZ given it has similar pricing problems – despite slashing the pricing of its packages.

Foolish takeaway

Sky says it still expects to meet the low range of guidance reaffirmed in February 2016, but FY17 could be one to forget for the company and its shareholders.

A better bet than Sky Network Television?

When renowned dividend investing pros like Andrew Page issue buy alerts, it pays to listen. Because investors who followed Andrew's recommendation of Australian Pharmaceuticals in early 2015 could've doubled their money in just over a year, turning $15,000 into over $30,000 by the time he recommended they sell and lock in their profits. Chances are you won't want to miss uncovering the names of Andrew's newest share recommendation and short list of 3 dividend Best Buys Now Shares.

Click here to learn more about these potentially life-changing shares - no credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool writer/analyst Mike King owns shares in Telstra Corporation. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.