BSkyB: On way to 30 HD channels

MAXIMUS · #1 01-05-2008, 01:44 PM

BSkyB: On way to 30 HD channels

Chris Forrester,

BSkyB’s headline Q3 results were sound, with CEO Jeremy Darroch (pictured, left) saying HD is at the core of Sky’s thinking. This will see the company taking its HD offering beyond 20 channels and towards 30, which would be the world’s largest HD offering outside North America.

“HD is at the core of our thinking,” said CEO Jeremy Darroch. “HD will lead in how we innovate new products.” He hinted that Sky was looking at greater hard-drive storage, and saw HD as being the core Sky+ product, with lower box costs and the intention to remove or reduce the HD installation charge as a barrier to entry. However, he said the £10 a month HD premium fee would stay.

Darroch also said Sky “will take a look” at Tiscali, the Italian and UK broadband service that’s up for sale, and which has set May 5 as the deadline for bids.

BSkyB’s DTH subs grew 56,000 in the broadcaster’s third quarter, with 43,000 new HDTV subscribers and an impressive 3.39m Sky+ PVR users (up 262,000, and now 35% of Sky’s customer base). Even better progress was recorded in terms of broadband connections, up 229,000 to 1.4m and signing up an additional 180,000 telephony connections to a new total of 1.09m.

This was all good news, and there was plenty more, but the bottom line result for Sky was a third-quarter loss of £6m ($11.8m) which is a huge swing from last year’s (same period) profit of £152m. The reason was the further writing down of the value of Sky’s 17.9% stake in ITV, and recognising the plummeting fall in ITV’s share price, which meant an impairment charge of £131m in Sky’s books – and the commensurate affect onto the bottom line.

“This is the peak of our investment in broadband and the business financially is performing bang in line with expectations. So pretty much across the board I think it was a good set of results,” said CEO Jeremy Darroch. “We took a decision 12 months ago to focus very much on the quality of new customers. And that's meant that we have dramatically reduced the level of viewing package discounts that we offer today versus a year ago. Now all of that meant that gross adds were down a little bit versus the same period last year, but our conversion rate was much better. Churn is now at a three-year low and, as a consequence, we're growing in line with our targets, and that's really the number that we focus on.”

Darroch stressed that Sky was on target to hit its 10m DTH subscriber target by 2010, and improve ARPU beyond today’s £424, up seven per cent. Churn was up slightly since the December quarter, to 10.5%. In general Sky is toughening up its entry and credit qualifications for new subs in an attempt to cut churn. Moreover, as Sky’s clients take multiple products the likelihood to churn out is reduced. In fact nine per cent of Sky’s customer base are now “triple play” clients, taking TV, broadband and telephony. This is a modest amount, but it is only 16 months into its availability, and might be considered a remarkable achievement.

Other key elements of Darroch’s conference call were:
• Sky will unbundled its Broadband and Telephony offerings over this next year
• There’s fresh thinking in the pipeline for Sky’s multiroom offer
• ARPU will continue to grow “pretty consistently”
• Sky HD is further ahead than Sky+ at the same time in its life cycle
• Amstrad ownership has brought average box prices down £7.
• Sky will consider acquisitions “that would accelerate our strategy”.

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