BSkyB grows subscribers - but at a cost

BSKYB HAS kick-started growth again, enjoying its best Christmas season for two years, the pay-television group revealed yesterday.

However, there was concern in the City at the price the satellite company is paying to execute the growth strategy outlined in August last year by its chief executive, James Murdoch. At the time, Mr Murdoch admitted that customer growth had stalled, adding that the company needed to invest heavily to reach out to consumers.

The half-year figures reported yesterday showed that "subscriber acquisition costs" (SAC) rose 10 per cent to pounds 230 a customer - about double the increase expected by analysts. "We said [in August] that SAC would rise. It's the right place to be investing money, it's investing in growth," Mr Murdoch said.

In the last three months of 2004 - the second quarter of Sky's financial year - the company added 371,000 subscribers, its best quarterly performance for two years. After counting customers that left during the quarter, the net subscriber figure was 192,000 - well above City forecasts of some 150,000. That took the company to 7.6 million customers - on course, it said, to hit its target of 8 million homes by the end of this calendar year.

Sky began a massive advertising campaign in October, promoting its lower- tier packages for the first time, as the company began a drive to get to a fresh target of 10 million subscribers by the end of the decade. Kingsley Wilson, at Investec Securities, said the rate of increase in subscriber acquisition costs "took the gloss off a great set of numbers".

But he added: "Although SAC went up, so did margins. A land grab is expensive but what Sky is saying is that it is doing a measured land grab."

Expenditure on advertisements jumped 72 per cent for the half-year to pounds 43m. Other marketing costs, which include the subsidy offered by Sky to install its equipment in customers' homes, rose 12 per cent to pounds 193m, taking total marketing costs in the period to pounds 258m, a 20 per cent increase on 2003.

Paul Richards, an analyst at Numis Securities, said each new customer, over the life of a subscription, was worth about pounds 1,500 to Sky.

"Regardless of whether they're paying pounds 210 or pounds 230 for new customers, it's still a pretty good payback.... Sky has reiterated all its margin targets and it wouldn't be doing that if SAC was spiralling out of control," Mr Richards said.

Pre-tax profits rose 18 per cent to pounds 154m for the half-year, while turnover was up 10 per cent at pounds 1.9bn.

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