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By | May 23, 2001

      BSkyB has taken full control of its t-commerce arm Open by buying out minority partner British Telecom’s 19.9 per cent stake for a maximum GBP387 million (E626.9) in an all-paper deal. BT are currently engaged in a debt-reduction exercise and Open was no longer seen as part of its core strategy.

      BSkyB will pay for Open in two portions, the first being during the next five weeks with 19.1 million BSkyB shares worth some GBP147 million and second in stock or loan notes to a value of up to GBP120 in 18 months time. BT has a clause in the deal that will give them an additional GBP120 million if Open reaches a specific valuation by 2003.

      Open was set up by BSkyB, BT, Matsushita and HSBC in 1997 to handle Sky’s interactive businesses. As a result of the deal, Sky will now close the division and lose about 300 staff in the process.

      Analysts gave a cautious welcome to the consolidation, with Merrill Lynch’s Neil Blackley halving Open’s revenue forecasts for 2002 from GBP115 million to just GBP57 million but being happy with Tony Ball’s prediction that by 2005 average revenue per subscriber will hit the GBP400 mark. Blackley added that although “we now forecast GBP437”, this sum includes all interactive betting via telephone as well as through the TV and Sky’s other pub and club-based income streams, already worth GBP80 million or GBP16pa ARPU.

      This is good news, and BSkyB’s CEO Tony Ball is also likely to have been cheered by developments in North America, even though they involved Echostar, which may eventually turn out to be s competitor in the region

      Echostar turned in another impressive set of quarterly figures last week, out-pacing most forecasts and showing what can be done with an aggressive DTH marketing policy. Indeed, it added a net 460,000 subscribers during 1Q/01 (Q4/00 495,000), which was well ahead of Merrill Lynch’s admittedly optimistic forecast of 385,000 for what is traditionally a quite time of year.

      However, last year Echostar did the same (455,000), thereby scotching the usual post-Christmas blues. EBITDA was a positive $51 million versus a $88 million loss this time last year, causing Merrill’s US satellite analyst Marc Nabi to describe the event as a “significant milestone” in Echostar’s history. Churn was an acceptable 1.4 per cent per month, and well below DirecTV’s 1.7 per cent and digital cable’s 5 per cent in the US.

      Although Nabi is forecasting 6.9 million Echostar subscribers by the end of the year, what is telling is that Echostar is winning 58 per cent of all new DTH additions, which should be a worry for Rupert Murdoch. Merrill Lynch says Echostar will have more than 42 per cent of the DTH market by 2007, and, according to Nabi, if the Hughes/News Corp. talks fail then “Echostar’s management has stated that it would be interested in combining with Hughes. We believe that this transaction would be a positive alternative for both Echostar and Hughes, as it would create a very powerful competitor against the US cable television industry”.

      In the UK, Merrill Lynch expects BSkyB to end its financial year (on June 30) with 5.463 million DTH subscribers. Blackley nevertheless remains pessimistic about BSkyB’s advertising income prospects for the next year or so, reflecting the gloom now affecting the commercial TV market in the UK (which is 6 per cent down on last year). He is also negative about future income from ON/ITV Digital and cable.

      The bottom line, at least for Blackley, is that by 2005 these elements will have trimmed around GBP200 million from his previous expectations of Sky’s total revenue, with Open’s income likely to be 49 per cent lower (against previous expectations) and cable/DTT income marked down 10 per cent and not helped by a gloomy suggestion that ON/ITV digital will still be struggling to break through the 2 million barrier in 2005. Internet and betting income, however, is up 5 per cent and should be worth around GBP276million per annum by 2005. These changes result in Sky’s pre-tax profit expectations being trimmed 11 per cent to GBP1.1 billion for 2005.

      Sky will break 10m subs mark in June

      A forecast from investment bankers Merrill Lynch says BSkyB will have more than 10 million subscribers by the end of its financial year (June 30). By 2005, says senior analyst Neil Blackley, that number will have grown to almost 15 million, made up of cable, DTT and even a modest number of DSL subscribers.

      But Blackley, who is widely respected in the industry, suggests that ON/ITV Digital will not have broken through its 2 million target by 2005. ONdigital themselves talk of breaking even in 2003-4 with 1.7 million subs, which Blackley suggests will not be achieved until mid-2004 at best.

      Sky Subscribers*

      Digital DTH
      *at June 30 each year
      Data: Merrill Lynch, May 10 2001

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