H1N1 + (-GDP) = Sky+HD

By Andrew Hill

Published: April 30 2009;

British Sky Broadcasting won’t put it like this, but pandemic and Depression are good for the Murdoch-controlled satellite broadcaster.

Swine ‘flu is no joke, but add those British customers unwilling to go out to the cinema, sporting events and restaurants to those unable to do so because they are conserving cash in a downturn and you have a potential bonanza for BSkyB.

That also helps explain the counter-intuitive news in Thursday’s quarterly results that more customers than expected are adding high-definition television subscriptions to the services they buy from Sky. It costs more per month, but Sky’s shrewd up-front discount on the price of the HD set-top box evidently appeals to a growing number – 1m so far – of the 13m UK households that have already bought high-definition TVs. If you can’t or won’t travel to foreign parts, go to football matches or watch blockbusters in the company of sneezing movie buffs, why not experience all those things in glorious wide-screen, Technicolor high-definition in the safety of your own home? It’s a simple formula: H1N1 + (-GDP) = Sky+HD.

This push by BSkyB comes at a price, but investors should be prepared to pay it. You don’t have to have a PhD to work out that a loss (what Sky calls an “investment”) on the promotional upgrade or installation of the HD box will eventually be recouped through the added monthly revenue from an HD subscriber. That takes less than 24 months for an existing customer, 12 for a new one.

The only question is how Sky will sustain this pace. The set-top box is a Trojan Horse for additional services, but will we want them all? Having watched episode one of global economic and viral disaster unfold in high definition, how many of us will want to don 3-D glasses to view the happy ending when it’s finally safe to leave the living room?