BSkyB Denies Broadband Launch Rumours

BSkyB has no intention at this stage of entering into the UK broadband market, the satellite broadcast said.

U.K. press reports had indicated that BSkyB would follow the lead of competitors such as NTL and ITV Digital and offer broadband and Internet services in the UK.

A spokesman for BSkyB told Interspace, “We certainly see DSL as an interesting technology. However, at this stage, we have no plans to launch a broadband product. We plan to monitor the situation but at this stage there are no current plans.”

The operator, which serves around 5.7 million households in the UK, could also be looking to limit its channel offering to deal with a struggling UK TV market. BSkyB CEO Tony Ball has already hinted that BSkyB may not consider the FA Cup rights as an integral part of its strategy going forward.

The problems at ITV Digital mean that BSkyB is likely to be far more selective when acquiring sports rights. The Premiership contract is still critical but other contracts could be deemed expendable.

BSkyB may no longer feel the need to pay for the most expansive set of channels around. It could well have reached the peak in terms of how many channels it is going to offer. Rebecca Allen, a media equity analyst at JP Morgan, told Interspace: “I think BSkyB has reached the point where they don’t see why they need to pay for a large proportion of those channels. They will move to a situation where they are being paid themselves for channels to have access to BSkyB subscribers. Increasingly, a lot of channels will have to rely on advertising revenues.”

It seems the market conditions are giving BSkyB the opportunity to evolve its business in a number of ways. The satellite broadcaster is increasingly operating from a position of strength and this could spell bad news for smaller channels that are already struggling to survive.

Allen notes, “I think over time BSkyB will want to rely on advertising revenues. I think at that point it makes no sense to be massively fragmented. It makes far more sense to concentrate all your money on a very small number of channels.”

She adds, “In terms of distributed channels, most of the original contracts were signed at the time they launched the digital product. They were five-year contracts so a number of them are coming up for renewal. It doesn’t mean those channels will die if they fail to achieve a subscription fee. It means those channels will have to rely 100 percent on advertising, which puts them in a tough position.”

BSkyB now appears to have the opportunity to make significant cost savings, which can only be of benefit to the business. These plans are unlikely to lead to a significant increase in churn. JP Morgan has a “buy” rating on the stock and has increased its target price to GBP8.80 ($12.70).

–Mark Holmes