BSkyB well set for new dimension

Published Date: 18 October 2009
By Nathalie Thomas

SATELLITE broadcaster BSkyB has taken the recession on the chin, but subscriber growth is this week expected to show a slight slowdown in demand. However, analysts say the media giant remains well placed to take advantage of the economic recovery.
In the year to June, it added some 462,000 new subscribers, the highest number of additions for five years.

But analysts are forecasting that net customer growth will have eased to 86,000 during the last three months, down 1 per cent on the same period last year.

However, they say continued strong demand for Sky's High Definition (HD) service, plus its launch of 3D television next year, will position it well for the next three years as Britons' thirst for home entertainment continues unabated.

Sam Hart, analyst at Charles Stanley, said: "Generally, Sky has been extremely resilient in the downturn – probably more so than anyone anticipated. It's really good value from a customer's point of view and there's still demand for good value home entertainment in the current environment."

Paul Gooden, analyst at Royal Bank of Scotland, said the launch of Sky's 3D channel, which will mark the first move by a European broadcaster into 3D TV, is likely to be a "game changer" for the company.

"Our analysis suggests that 3D could eventually be worth an additional 50p per share in value – if executed well," Gooden said.

Gooden said subscriber growth is always "seasonally weak" during the first quarter of BSkyB's financial year and the figures are expected to pick up again strongly in the run up to Christmas. However, total revenues are thought to have gained considerable ground during the last three months, with consensus figures pointing to a year-on-year increase of 9 per cent to £1.36 billion. Adjusted operating profit is tipped to come in 6 per cent ahead at £193 million.

BSkyB, which is 39 per cent owned by Rupert Murdoch's News Corp, has been praised in the City for its strong investment in both content and technology. Its shrewd bidding for the 2010-11 season of Barclays Premier League coverage, where it increased its market share by 16 per cent, was widely credited for the demise of Irish broadcaster Setanta in the UK market. Setanta had held the rights to the Scottish Premier League, so its collapse has boosted Sky's customer base north of the border. Before the start of the current football season, Sky and Disney-owned ESPN reached an agreement with the SPL to split the live broadcasting rights for games.

The digital giant will shortly start to sell music online through its Sky Songs service and this will boost its coffers.

However, investors are concerned about a threat by media regulator Ofcom to improve competition in the pay-TV market, including a proposal that would force BSkyB to make some of its premium content available to competitors on a wholesale basis. The City expects Jeremy Darroch, chief executive of BSkyB, to appeal any such ruling by the regulator through the Competition Appeals Tribunal. Ofcom's pay-TV investigation is expected to conclude early next year.