BSkyB reports strong Q1 despite slowing growth

By
Tim Westcott

April 28, 2011

BSkyB reported a strong set of results for the first three months of 2011, with a continuing slowdown in its core pay TV service offset by gains in triple play, wholesale and advertising. Net quarterly DTH additions in Q1 (BSkyB's fiscal Q3) were 51,000, compared to 62,000 in the same period of 2010. A net gain in HD subs of 189,000 was weaker than the 428,000 added in Q1 2010, when BSkyB launched free HD boxes. There was a net gain of only 18,000 Multiroom subscribers, but increases in broadband, telephony and line rental customers were all stronger than in 2010. In all, 26 per cent of BSkyB's cusomers now take all three of the services it offers - TV, broadband and fixed-line telephony. ARPU (on a quarterly annualised basis) was up eight per cent at £544.

Revenues for the first quarter were £1.647bn, up 13 per cent year-on-year, while operating profits were up 22 per cent at £270m. BSkyB's core revenue stream from retail subscriptions was up nine per cent to £1.336bn. Revenues from wholesale distribution of its channels continued to grow strongly, up 39 per cent year-on-year to £85m, with advertising up 42 per cent at £112m. The consolidation of the Living TV channels since 2010 was one factor in this increase, as well as the increased sale of Sky premium channels on third-party platforms - particularly cable TV operator Virgin Media.

Management of BSkyB said it remains cautious on the outlook for the rest of the calendar year in what it called a 'challenging consumer environment'.

BSkyB cruised through the UK's economic downturn by foregrounding HDTV and aggressively expanding into broadband and fixed-line telephony. It is now experiencing the downside of having strong comparatives to live up to, although double-digit increases in revenues and operating profit for the first nine months of its financial year should be weighed up against the undoubted slowdown of its core DTH business in a mature pay TV market.

The UK economy is sluggish (GDP was up just 0.5 per cent in the first three months of the year) and the outlook remains uncertain, so we continue to see BSkyB's cautious outlook for the year as being well-founded. BSkyB does have scope to rein in its investments in content (programme spend increased 14 per cent in the first nine months of the year) and triple-play (direct network costs were up 31 per cent due to growth in broadband and fixed line telephony) if the going gets tough.

BSkyB's strong performance is a mixed blessing for its main shareholder News Corp. The government is expected to give the go-ahead for News Corp's full takeover of BSkyB next week, subject to conditions. However, since News Corp made its 700p per share offer in June last year, BSkyB's share price has steadily climbed, opening this morning at 837.5p. This suggests News Corp would have to spend £9bn rather than the £7.2bn originally envisaged to buy out the other shareholders.

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