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Business Analysis & Features

Cowabunga! TalkTalk signs Bart for TV battle

The telecoms outfit is promising value for money as it takes on the three big beasts of pay-television

Dido Harding is used to upsetting the odds. She is a former jockey and racehorse owner, and her steeplechaser Cool Dawn won the Cheltenham Gold Cup at 25-1 in 1998. Cool Dawn wasn't the greatest horse, but it was a value bet and won on the day.

Ms Harding, now chief executive of telecoms group TalkTalk, might not describe her new foray into pay-TV in such terms, but she would certainly agree it's about offering a value option. She has just announced plans to give premium customers a free YouView internet-connected TV set-top box, worth £300, if they sign up for a "triple play" of broadband, home phone and TV.

This is a bold move by Ms Harding to turn TalkTalk, previously best-known for just broadband and home phone, into a serious low-cost alternative to the big three beasts in pay -TV and telecoms – Sky, Virgin Media and BT. Talk Talk's "triple play" package will cost £29 a month, and she claims it is "the best value for money by some margin".

Her target is the millions of Britons who want a wide range of TV channels but don't want to pay a big monthly subscription of £50 or more for a package from the top-of-the-range players. "It is a very natural upgrade for seven and a half million Freeview customers," says Ms Harding.

Anyone can buy a YouView box, which has just launched. It offers all the Freeview channels from the BBC, ITV and others, plus catch-up programming from the last seven days, a search-and-browse facility and the ability to pay for programmes.

But the £300 price tag in stores is a deterrent, which is why Ms Harding hopes to outsmart rivals by offering the boxes free to TalkTalk's one million premium customers. In another significant move, Ms Harding has agreed a deal with BSkyB to offer her customers most of Sky's main channels, including Sky Sports 1, 2, 3 and 4, Sky Movies and Sky1, home of The Simpsons. (Only Sky Atlantic is not part of the deal.)

A TalkTalk customer can also pay for the channels on a month-by-month basis, rather than having to sign up to an annual deal, and manage their account online. "If you're a cricket fan, you'll only have to pay for Sky Sports during just the cricket season," she says.

BT and Virgin have spent years haggling over the wholesale prices they must pay Sky. Even now, BT doesn't carry Sky Sports 3 and 4. Yet Ms Harding has suddenly swooped and secured her own deal. Clearly Sky doesn't see low-cost TalkTalk as a threat to its premium offering. BT and Virgin are likely to be worried.

In another coup, TalkTalk, which was spun out of Carphone Warehouse two years ago, has recruited Sony chairman Sir Howard Stringer, a global media heavyweight, as a non-executive director.

Giles Cottle, principal analyst at Informa, said TalkTalk was smart to strike deals with Sky and LoveFilm, rather than entering "an unwinnable battle" by offering its own content. "It is a classic 'telco TV lite' strategy, designed to protect its broadband customer base," said Mr Cottle. "TalkTalk has executed it very well."

TalkTalk shares, which have gained 25 per cent in the past year, yesterday jumped 3.4p to 176.4p.

One worry is TalkTalk's past reputation for poor service. But Ms Harding insisted it has overcome those problems as customer numbers finally stopped falling and grew last month. She is also not rushing the introduction of YouView because, in her words, she wants to "de-risk the launch". Customers must book an engineer visit for £50, with installations not starting until September.

Giving away set-top boxes is not cheap but Ms Harding says every TV customer should be profitable within the lifetime of an initial 18-24 month contract. In the ultra-competitive world of telecoms, "triple play" is the Holy Grail – not only because the provider makes more money from each customer but also because phone, TV and broadband are converging.

Keen horsewoman that she is, Ms Harding can certainly say TalkTalk is now at the races.

Sky high: Profits set £3m-a-day record

BSkyB showed just what Rupert Murdoch is missing as Britain's biggest pay-TV company raked in record annual profits of £1.89bn — equivalent to more than £3m a day.

Mr Murdoch, who aborted his takeover of Sky because of the phone-hacking scandal, insisted a month ago that his News Corporation is no longer interested in buying the FTSE 100 firm, but another strong set of numbers from Sky suggests otherwise.

Pre-tax profits surged 17 per cent to £1.19bn in the year to June.

In a further sign of strength, chief executive Jeremy Darroch hiked the company's dividend 9 per cent to 25.4p and announced a new, £500m share buyback.

The vast majority of Sky's 10.6 million subscribers already take TV, so Mr Darroch has focused on selling more broadband and home-phone services.

Sky recruited only 20,000 new TV subscribers in the last three months, but 138,000 signed up for broadband and 141,000 for home phone.

"A switch-and-save message for customers has worked well in a very tough, economic environment," said Mr Darroch, who froze prices last year.

Even so, annual revenues rose 4.5 per cent to £6.79bn.

Churn, the rate at which customers quit, also improved. That suggests the pay-TV giant is not yet feeling much impact from online rivals NetFlix and LoveFilm, even though Sky has launched its own cut-price internet service, Now TV.

He said Sky deputy chairman Tom Mockridge, who runs Mr Murdoch's troubled newspaper arm News International, was not in a difficult position now that News Corp is splitting its TV and publishing interests.

"We're a separate independent company," said Mr Darroch.