BSkyB results: warning Kirch to start selling subs

Chris Forrester Editor

Speaking at the BSkyB AGM last Friday, Rupert Murdoch said that its 24 percent investment in Leo Kirch’s Premiere World had proved to be a disappointment, with losses exceeding GBP29 million (E47 million) during the last quarter. He added that he wanted to see steady subscriber growth and lower churn from the German pay-TV company, which had been given until next October to prove its mettle. Furthermore, he criticised ITV Digital’s managers for “whining” to the UK government and seeking its help.

Although BSkyB’s last quarterly results (to September 30) showed a jump in both revenues and profit, they revealed a slightly smaller than expected increase in DTH subscriber numbers (5.498 million) following its decision to switch over to a digital service. Operating profits in its fiscal Q1 – namely the three months to September 30 – meanwhile rose by 23 percent to GBP45 million before one-off costs representing the company’s sixth successive quarter of year-on-year growth. At the same time, losses during the period amounted to GBP94.8 million – an improvement on the previous quarter’s GBP128.9 million.

Despite suffering a 6 percent fall in advertising revenue during the period, BSkyB was helped by an 8 percent jump in ARPU to GBP317 per subscriber, with income from Sky Digital’s interactive service rising to GBP47 million, over half of which related to telephone and internet betting. Although hard subscriber numbers showed some 190,000 customers bought BSkyB’s television package in the quarter, it lost 145,000 subscribers by switching off its analogue service. Overall revenues, nevertheless, improved by 24 percent to GBP643 million and the company reiterated its target of reaching 7 million DTH subs by 2003. At the same time, its SAC costs fell from GBP250 to GBP237 per subscriber, with cash-flow positive status still likely to be achieved from January 2002.

BSkyB’s chief executive Tony Ball meanwhile revealed that that subscriber costs would rise by an average of 8 percent in January. He also spoke specifically about an outline wholesale agreement with the cable company NTL “which is still with the Office of Fair Trading 18 months later. We have a business to run in spite of the regulators, so we are looking at [new] carriage deals with NTL and others because I believe wholesale revenues can be improved.”

The net growth of 45,000 takes BSkyB’s total digital-to-home subscriber base to just under 5.5 million, which is marginally below City forecasts. An additional 4.7 million nevertheless view Sky’s news, movie and sports channels on cable networks or ITV Digital in the UK and Ireland. However, its churn, which a year ago stood at around 7-8 percent, has risen to a worse-than-expected 10.4 percent.

Ball added that its Sky Plus set-top box was selling “well ahead of target” and would benefit from a pre-Christmas marketing push. Current subscriber growth was indeed “very robust” – possibly helped by analogue subscribers who recently woke up to find their signals switched off – and this current quarter, normally the best of the year, was shaping up well.

Ball also said the broadcaster had achieved its goal of becoming a fully digital service well ahead of target, adding it “continues to attract high-quality subscribers and to deliver strong revenue and profit growth despite the difficult advertising market.” He continued that although Sky would be interested in talking to ITV Digital if it made any sense, “we are wary of getting involved in a business that looks like an open artery.” Indeed, Carlton and Granada (which own ITV Digital) are a facing a slump in advertising, putting further pressure on their finances, while BSkyB derives the bulk of its revenue from subscriptions.

Rupert Murdoch’s comments were nevertheless more to the point, arguing that ITV Digital suffered from being run by people more used to the old duopoly ways of broadcasting, while Sky had created the competitive element in television some 12 years ago when it entered the UK market. He stated that even if BSkyB were to lose a current regulatory investigation into abuse of a dominant position in television, it would appeal any negative decision from a “misguided OFT … because we have done nothing. I have faith in the judicial system’s ability to ensure fairness.”

Programming costs at BSkyB meanwhile rose by GBP51 million to GBP303 million, mainly due to higher sports rights costs following the start of a new Premier League football deal. Speaking after the BSkyB AGM, Murdoch said he felt sports rights had “absolutely peaked,” although Sky was unlikely to go back to the sports associations seeking to reduce payments given that “most of the cash had already gone into doubling players’ salaries.”

Ball added: “I have bought a lot of sports rights over the past 20 years, and it is an interesting market we are seeing now. The money we paid [for the Premiership rights] was the right price in that market; it was an auction after all. But going forward, I would not expect those prices to go much higher. If anything, I think we will be a bit more choosy in what we take.”

Additional Point. British Telecom has applied for a television broadcasting licence from the ITC. If approved it would permit the company to supply DSL-based services.