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July 29, 2011
BSkyB says it will continue to monitor its directors and respond appropriately to concerns over the management board's composition, but dismissed as 'ludicrous' any suggestion that its 39 per cent shareholder News Corporation was not 'fit and proper' to hold a broadcasting licence. The pay TV operator said that four board members would be replaced in the coming months as they reached the end of their terms, but has so far maintained full support for the continuing services of James Murdoch. News Corporation will participate fully in a planned £750m share buy-back on a pro rata basis, maintaining its current stake.
The company reported another strong quarter to end June 2011 with impressive growth in communications products bolstering income. It reached 10.187m satellite customers with a further 107,000 taking telecoms services only. Churn held steady at 10.4 per cent while ARPU rose to £539 on a quarterly annualised basis. The group said it expected 2011 to continue to offer a tough consumer environment but saw ongoing growth from the increasingly important upsale of triple-play services as well as HD, which reached 3.822m homes at the end of June. Twenty-seven per cent of homes take triple-play services.
Despite the importance of telecoms services to future growth, BSkyB continued to focus on TV content, announcing a seven-year deal to show all Formula One races live and in HD from next year, as well as the launch of a suite of new HD channels that will take its total past 60 within the year. New HD channels already agreed include Disney Channel, Cartoon Network, TCM and Animal Planet and a new deal with UKTV will see content from Dave, Alibi and Watch on the Sky Anytime Plus service. BSkyB has also launched a joint-venture UK 3D production company with Colossus to develop 3D content, in which it will hold a 20 per cent stake. The channel business performed particularly well in the quarter, with wholesale revenues up 36 per cent to £323m on the back of higher premium uptake and the addition of Sky Living, the female-skewed entertainment channel acquired from Virgin.
Despite its continued focus on premium and exclusive content, BSkyB's recent strategic decisions suggest that it sees telecoms services accounting for much of its growth going forward. Allowing the purchase of telecoms services without a TV subscription (an option first made available mid-2010) is a clear divergence from previous bundling options that have directed customers towards and up the TV chain. We estimate that telecoms services will account for £80 of ARPU in calendar 2011, or 14 per cent of total.
The group remains bullish on the longevity of its existing DSL broadband offer, with no immediate plans to roll out its own fibre network to compete with BT's next generation broadband. But it does expect to agree wholesale fibre access within a year, depending on customer demand. Telecoms services are also key to the roll-out of Sky's next generation of content access services, including recently launched Sky Go and its Cloud wireless access operation for out-of-home content delivery. Access to these services is increasingly tied to taking Sky phone and broadband.
BSkyB has some way to go before it reaches the triple-play uptake of rival Virgin Media. On a like-for-like basis, BSkyB's customer base take 1.6 services per home (not including HD) against Virgin's 2.5. But with recent growth, BSkyB has shown that its strategy to embrace triple-play has been an unprecedented success.
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