HDTV surges and HBO renews deal, but football rights costs peg back Sky profits

Joseph O'Halloran | 30-01-2014

It may call it a very good first six months in which it reaped the benefits of a broader-based approach to growth, but BSkyB’s half-yearly results have also shown the cost of maintaining the crown jewels of rights to English Premier League football.

For the half-year ended 31 December 2013, the UK pay-TV leader posted strong revenues of £3.751 billion, a year-on-year increase of 7.6%, driving profits of £595 million. However this represented a fall of 8% compared with the same period in 2012, attributable to what Sky said was investment in connected TV services and a “one-off step-up” in Premier League costs.

After it paid £2.3 billion to secure rights to the Premier League in June 2012, Sky committed to paying a flat amount of £760 million in 2013 and then more for the two subsequent financial years, and its recent quarterly results reflect this schedule. This notwithstanding, adjusted EBITDA was flat at £813 million.

The company did, though, highlight real growth in the second quarter of the year with a 42% growth in paid-for products, including 873,000 new paid-for subscription services. It now has a total of 10.536 million TV customers, up 1.5% year-on-year, but the real standout was HDTV which broke trough the five million home barrier for the first time. Just over a third (36%) of Sky customers subscribe to triple-play services, 534,000 more than a year ago.

The other bright spot during the half-year was connected TV growth where the company boasts that its investment is driving returns. Sky posted record growth in connected Sky+HD boxes, up one million in Q2 to 4.4 million, a three-fold increase in on-demand usage. Sky Store transactional revenues were up 100%.

Commenting on the results, Jeremy Darroch, chief executive, said: “In a consumer environment that remains challenging, customers continued to choose to take Sky products in ever greater numbers [and] investments we are making to accelerate growth in connected TV services are delivering excellent results … Everything that we see tells us that customers love the benefits that come with the connected box ... Our financial performance was strong in the first half and we remain on track for the full year.”

Sky is looking to create more compelling propositions through partnerships with leading content providers. The company has just signed a deal with Home Box Office (HBO) to co-develop and produce new, original drama as part of an expanded partnership between the two companies. The collaboration includes an extended content output deal to ensure that Sky Atlantic remains the exclusive home of first-run HBO programmes in Britain and Ireland through 2020. The two companies will work together to develop and produce new drama series for broadcast on their networks in the UK, Ireland and the US. With the extended output deal, new HBO programmes – including True Detective and Looking – will continue to premiere exclusively on Sky Atlantic along with the return of award-winning shows such as Game of Thrones, Boardwalk Empire and Girls.

In another significant move, Sky Sports has secured six long-term rights agreements across six different sports including the British & Irish Lions, Super League rugby, England overseas cricket, Scottish football, speedway and sports entertainment leader, WWE. Over the last six months of 2013, Sky Sports enjoyed its highest share of viewing for six years, including increased audiences for live Premier League football and its biggest ever audience for rugby union.