BSkyB could be facing a serious issue with average revenue per subscriber (ARPU) this year. In a research note, Banc of America Securities media analyst Sean Eddie issued a “sell” recommendation on BSkyB shares and issued a 12-month price target of GBP5.20 ($8.46). BSkyB’s shares currently trade around the GBP5.63 ($9.16) mark.

The reasons for the recommendation lies in the fact that after a stream of price rises over the last two years, top-tier customers are beginning to switch to less expensive packages, consequently hitting the ARPU figure.

In a research note, Eddie said: “While price rises have not hit churn, we estimate that 700,000 subscribers traded down last year. This is a three-fold increase on the prior year, and represents 23 per cent of the top tier base (13 per cent of the total direct-to-home base).”

BSkyB has continued to be the envy of many in the industry with impressive subscriber growth and low churn. In the last year, it has appeared to do no wrong. The demise of ITV Digital enabled it to pick up more subscribers. Even the much trumpeted price increases have not led to greater churn. But, Eddie said that opting for less expensive packages may be more of an option for BSkyB customers than switching to someone else. “Perhaps, given the lack of strong competitors, outright churn may not be the first sign of increasing price sensitivity among Sky consumers. Currently, we see no credible competitor for consumers to churn to, and Sky is obviously enjoying a built-in ‘incumbency’ or ‘inertia’ advantage. Hence, it may be that churn is too aggressive a customer move to be expected as an early indicator of heightened price-sensitivity. Perhaps, trading down is more likely.” –Mark Holmes