BSkyB Prepares For Life After Ball’s Departure
It has been a mixed few days for UK satellite pay-TV operator BSkyB. Firstly, Tony Ball announced he would not be staying on as CEO when his contract expires in May of next year. He has promised to stay at his post if a new CEO is not found by then, but that seems unlikely. Names mentioned as possible successors to Ball include James Murdoch, the youngest son of News Corp [NYSE: NWS] CEO Rupert Murdoch, who currently heads up Star TV in Asia, which showed a profit for the first time last year. BSkyB CFO Martin Stewart could also be a strong contender.
Certainly, Ball will be a tough act to follow. Mike Hilton, a media equity analyst at UBS Warburg, said: “There is no doubt from an operations perspective, he ran the business very well and it was also helped out by the collapse in the capital markets, which meant it was very difficult for the cable companies and ITV Digital to keep on functioning as they were, because they could not have access to cash any more. It is never easy to follow someone like that.” Another media equity analyst who requested anonymity added: “The new CEO has everything to lose given the position that BSkyB has currently.”
Seven Million Subscribers
Certainly, Ball has had an incredibly successful reign at BSkyB. This was underlined on Oct. 1 when the operator officially announced that it had broken through the 7 million number in terms of direct-to-home (DTH) subscribers. The company had set a target to reach that mark by the end of this year, so it has achieved this three months early. It is especially impressive when you consider no other satellite pay-TV operator in Europe has even half of this number. When BSkyB set the target three years ago, most thought it would have trouble reaching it, so it is a noteworthy achievement.
But, growth of this subscriber base is likely to slow. Between the end of June 2002 and June 2003, BSkyB managed to add close to 750,000 subscribers, an impressive performance. It has set a target of 8 million subscribers by the end of 2005. It needs to add just over 110,000 new subscribers a quarter to reach this target.
In the last quarter of 2002, BSkyB added well over 240,000 subscribers. However, that was the last quarter in which it added more than 200,000 subscribers.
BSkyB is basically giving itself nine quarters to add around a million subscribers. If you consider it added just under 750,000 in one calendar year, then the subscriber number targets facing the new CEO do not appear overly challenging. Certainly, it would come as a major surprise should BSkyB not hit this target, even though the growth in the UK pay-TV market is slowing down.
The challenge for the new CEO will be to cut costs in terms of content as well as improve the average revenue per user (ARPU) figure. The figure currently stands at GBP366 ($609.1) and the challenge is to grow this by just under 10 per cent, to GBP400 ($665.7) by end of 2005.
BSkyB’s dominant position was further underlined in the latest quarterly report unveiled by the Independent Television Commission (ITC). At the end of the second quarter this year, satellite had close to 60 percent of the UK multichannel TV market. Cable had 26.4 percent and DTT (digital terrestrial television) had 14.5 percent. In total, there are now over 12 million multichannel households and close to 11.3 million digital multichannel households in the UK. Digital TV penetration in the UK is now over 45 percent. Multichannel TV penetration is very close to reaching the 50 percent barrier and stood at 49.8 percent at the end of the second quarter.
(Robert Fraser, BSkyB, +44 207 705 3267)