BSkyB Continues Impressive Subscriber Growth

BSkyB has seen an impressive increase in its number of subscribers.

In its latest results, the operator announced it added close to 80,000 subscribers to the end of June. In fact, BSkyB’s strong performance in its consumer gains were above original analyst estimates from those who follow the direct-to-home (DTH) market.

According to Patrick Wellington, a media equity analyst at Morgan Stanley, this was a strong performance for the U.K. satellite broadcasting operator. Net DTH subscriber growth of 77,000 in the fourth quarter was ahead of the market’s 60,000 expectation, and 389,000 additions in the year puts Sky on track for the 10 million target in 2010, he said in a research note. Growth for the company’s digital video recorder offerings, Sky Plus, also are running ahead of the required rate to hit 25 percent of the 2010 base. "Multi-room is performing positively and Sky HD (38,000 subs so far with another 90,000 due to be installed by September) has got off to a good start," he said.

Conor O’Shea, a media equity analyst at Teather & Greenwood, also was impressed with BSkyB’s performance. "BSkyB released solid results. EBITDA at 877 million pounds ($1.6 billion), was slightly below our 889 million pound ($1.7 billion) forecast, due to lower than expected ARPU (388 pounds ($723.69) vs. 396 pounds ($738.61))," he said in a research note. "Net adds (77,000) were higher than our forecast 52,000, and market consensus of [about] 60,000, a good performance in the World Cup quarter."

However, while the results were overall greeted positively by analysts, there were one or two negative factors. The decline in average revenue per user (ARPU) was highlighted by O’Shea. "The concern was ARPU, down by 4 pounds ($7.46) in [the third quarter], itself 5 pounds ($9.33) down [in the second quarter]. The [third quarter] fall was more understandable, following steep new sub adds in [the second quarter] who will still be in promotional periods (half-price content for the first three months) in the following quarter."

On this issue, Wellington added, "The 4 pounds sequential quarter drop in ARPU to 388 pounds can be pinned on the seasonal effect of the end of the Premiership season and also on the high level of low cost promotions across 2005-06 to attract subscribers. The SAC figure rose by 24 pounds ($44.76) throughout the previous year to 261 pounds. This was in part due to the additional subsidizing of Sky Plus boxes in the December quarter when they retailed at 49 pounds ($91.39) as well as the extra customer activity caused by the higher annual churn number of 11.1 percent."

Profits also were significantly down in the quarter.BSkyB posted profits of 126 million pounds ($235 million) in the quarter, down from .profits of 193 million pounds ($360 million) in the same period a year ago.

Despite the 35 percent decline, Paul Richards, a media equity analyst at Numis Corp., believes Sky is on the right track with its strategy and offered high praise for the operator.

"In our view, BSkyB is one of the (very) few B2C media companies that has really come to terms with the digital age and we remain supportive of the group’s long-term positioning," he said in a research note. "Although the group has paid heavily for the Premiership rights, we are pleased that the uncertainty has been removed. In our detailed note last year, we outlined that increased competition could lead BSkyB to giveaway Sky+ at a cost of 1 billion pounds ($1.9 billion) throughout three years. We believe that our working was correct, but our conclusion was wrong. In our view, the broadband initiative is a smarter, more sustainable solution to the threat of increased competition."

–Mark Holmes

Contact, Robert Fraser, BskyB, email, [email protected]

Patrick Wellington, Morgan Stanley, e-mail, [email protected]

Conor O’Shea, Teather & Greenwood, e-mail, [email protected]

Paul Richards, Numis Corp, e-mail, [email protected]