BSkyB Targets Broadband And Sky+ Boost

By | August 14, 2002 | Feature

BSkyB’s latest results only serve to reinforce its role as the standard bearer for pay-TV operators in Europe. Its six million subscribers as of June 30 were ahead of most analysts’ expectations. BSkyB has stabilised churn at around 10.5 percent, despite two price increases in the last year.

With the demise of ITV Digital, BSkyB has been able to flex its muscles (See Interspace 748) in terms of programme rights and equipment costs through its recent deal with Pace. Despite the current weakness of cable players NTL and Telewest, BSkyB’s latest initiatives seem to be banking on a comeback of some kind from these players. Their main competitive advantage is their ability to offer the triple play (TV, telephony, Internet), whereas BSkyB generates its revenues only through television. BSkyB has signed a deal with British Telecom to offer its customers discounted phone calls. It has now extended this partnership by announcing a marketing agreement in which BSkyB will develop and market a special broadband offer to BSkyB customers. This marks the first tentative step for BSkyB in terms of broadband. It is positioning itself, should demand for broadband accelerate, to take advantage of the market upturn.

BSkyB’s initial foray into broadband could escalate still further. Sarah Simon, a media equity analyst at Morgan Stanley, said in a research note: “Management prefers to wait and see how much broadband takes off before committing further time and effort into offering a Sky-branded service. We think this is an appropriately conservative stance at this point in the development of broadband.”

The other major push from BSkyB will be through its Sky+ PVR (personal video recorder) product. It currently has around 28,000 subscribers and hopes to have 100,000 subscribers by the end of the year. For this to happen, it is likely that the price of PVR, which currently costs around GBP300 ($468), is going to have to come down. It is unlikely that there will be mass deployment – 28,000 out of six million is not a high percentage. While growth has been consistent, it certainly has not been explosive. In order to triple the number of PVRs by the end of the year, BSkyB will need to bring the price down to around the GBP200 ($312) mark.

The subscriber numbers are impressive. BSkyB added over 200,000 subscribers in the quarter ended June 30. BSkyB is clearly benefiting from the demise of ITV Digital and picking up its share of ITV Digital subscribers. Its seven million-subscriber target in the United Kingdom and Ireland by the end of 2003 is now eminently reachable. Certainly, it doesn’t need to grow at anything like 200,000 subscribers a quarter to reach this target, although it is likely the benefits of picking up potential ITV Digital subscribers will be more a short-term phenomenon.

BSkyB’s other major target it to have average revenue per unit (ARPU) reach GBP400 ($625) by the end of 2003. It is currently just under the GBP350 ($547) mark. Reaching that goal could prove difficult. With fewer new subscribers signing up for top-tier packages, the onus will be on further price rises, which could lead to existing top-tier subscribers opting for lower cost packages. Simon said: “We expect that the later the customers are that sign up, the less they are likely to be high-spending pay-TV users. However, it does indicate the need for the company to continue to put through price increases. We also note anecdotal evidence suggests that subscribers previously on the top package may now be churning down to cheaper packages.”

Sean Eddie, a media equity analyst at Banc of America Securities, commented: “We have not pushed up our assumed price rises of 7 percent in 2003, and 5 percent for the two subsequent years. Given recent increases in subscription prices, we believe that further increases could negatively affect levels of churn, especially after the one-off ITV Digital benefits are concluded.”

–Mark Holmes

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