Disappointment in the City yesterday with BSkyB's figures was more down to the company's refusal to set ambitious new growth targets than the numbers themselves.
Disappointment in the City yesterday with BSkyB's figures was more down to the company's refusal to set ambitious new growth targets than the numbers themselves. Ever since James Murdoch, BSkyB's chief executive, announced that the company would be surrendering margin and profit for the pursuit of subscriber growth - for which he was punished with a 20 per cent fall in the share price - he's been careful to ensure that expectations don't again run ahead of themselves.
Indeed, City forecasts have been massaged down to such a degree that in the event the figures looked spectacularly good, with excellent subscriber growth complemented by profits, operating margins, average revenue per subscriber and turnover all at record levels. Only in the cost of subscriber acquisition - up 10 per cent to £230 - were there tell-tale signs that the dash for growth is beginning to hurt. Even so, Sky's confident enough of its position to resume both dividend payments and share buy-backs.
So how come Mr Murdoch is still being so cautious about the future? Sky is neither raising its forecast of 8 million subscribers by the end of this year, which now looks easily achievable, nor its longer-term forecast of 10 million by the end of the decade, for which it would have to generate an unremarkable compound growth rate of only 4.6 per cent per annum. As for the target of £400 in average revenue per subscriber, that seems to have been abandoned entirely as no longer relevant.
None of this exactly squares with Mr Murdoch junior's characterisation of Sky as still essentially in its start-up phase with the best years still ahead. So again, why's he being so cautious? One explanation is that having been bitten so badly last August, he's determined not to make the same mistake again. Much better to under promise than to exaggerate your potential. Yet the more important reason why a couple of years out Sky may be struggling to achieve significant growth is, in my view, the challenge of broadband. I'm not sure that the significance of this technological revolution, or what it is capable of doing to the landscape of broadcast media, has yet been fully taken on board either by Sky or the City.
Sky pretends not to be too bothered by broadband, which as just another distribution channel it thinks of as more of an opportunity than a threat. On one level it may be right. Free to air broadcasters are much more obviously threatened by the fragmentation of media that broadband allows than Sky, which pioneered multichannel TV in Britain and whose subscription model would seem perfectly suited to the brave new world we are about to enter.
Yet even Sky is likely to be tested to the limits by broadband once the applications and technology have been properly developed. This is possibly no more than two to three years away. Why, even sclerotic old British Telecom is finally getting round to introducing its own TV offering over the internet, more than a decade after originally suggesting it as a potentially interesting new market.
Sky's success depends crucially on packaging together unique content - in particular premiership football - over the monopoly distribution systems of satellite and cable. Broadband allows open access to whatever content is out there. It is an open prairie on which to roam, whereas Sky is much more of a walled garden.
Of course the history of the internet thus far, and indeed of most new technologies, is that the old economy is more adept at defending market position and profit than the revolutionaries ever imagine it will be. The media winners in broadband are likely to be those with strong brand and content, both of which Sky has in abundance. This is not so very different from the way the media has always been.
Yet to watch the kids of today, downloading episodes of the Simpsons from the US before ever they can be watched in this country on Sky, shows how dangerous the new technology is capable of being, even at this early, embryonic stage of development. Sky underestimates these threats at its peril. The internet very nearly killed the music industry. Broadband is quite capable of doing the same to the established goliaths of the media.
German jobs angst
Wolfgang Clement, the German Economy and Labour Minister, seemed to suggest that it was always darkest just before the dawn in announcing Germany's worst unemployment figures since 1933 yesterday. Perhaps he should take note of Mao's famous perversion of this tired old cliche: "It's always darkest just before it's totally black".
Appealing for national calm, Mr Clement then went on to explain that the figures would have looked even worse but for the 1.5 million people in public work programmes. Yet even ignoring these state supported jobs, unemployment rose nearly 600,000 in January to more than 5 million, or 12.1 per cent of the workforce. Is it really possible for things to get blacker still? With regional elections in both Schleswig Holstein and North North Rhine-Westphalia soon, Gerhard Schröder's Social Democratic Party must hope not. Mr Schröder came to power promising to halve unemployment from its then level of 4 million. He's failed as comprehensibly as the Lisbon agenda, which promised to make Europe the most competitive, knowledge driven economy in the world by 2010. We already know that this ambition cannot be met.
As it happens, there is nothing wrong with German manufacturing and technology, which is some of the best in the world and street's ahead of Britain's. Nor is there much to worry about in her export performance, which despite the strong euro remains relatively strong. The fault lies rather with domestic demand, which as separate figures indicating a further fall in retail sales in December show, still struggles to show any growth at all. The Germans simply won't spend enough.
There are none the less one or two glimmers of light at the end of the tunnel. Structural reform at a legislative and government level continues at the usual glacial pace, but slow, incremental change is better than no change at all, and in the meantime the private sector seems to be taking matters into its own hands. Pay reductions have been forced through at a number of large German companies, making their labour costs more competitive.
All this counts for nothing if domestic demand remains flat. One key question is whether Germany's unreformed banking system, parts of it weighed down by a veritable mountain of unrecognised bad debt, is capable of creating the readily available domestic credit necessary to persuade Germans to start spending again. Or will it have to get blacker still before Germany plucks up the political will seriously to grasp the nettle of structural change.
The Treasury yesterday made its first disclosures under the Freedom of Information Act, and pretty unenlightening they were too. There were apparently six candidates for Governor of the Bank of England when the job last came up for grabs, though we are not allowed to know who. The Treasury was none the less worried by how the eurosceptic and hawkish tendencies of the person eventually chosen, Mervyn King, might play with the press.
Even more revealing was the answer to the question about how the Treasury interprets the golden rule, which was to draw the enquirer's attention to the relevant paragraph in successive Budget Red Books. Our own inquiries of Government, here on The Independent's business desk, have so far met with similar platitudes or stonewalling.
On one we are told the answer would cost too much to produce, on another that the information is exempt, and on yet another that it will take more time to determine whether publication is in the public interest. If, on the other hand, you would like anything that reflects badly on the last Tory government, then there's absolutely tons of stuff they can give you.
Still, there is at least one consolation - the certain knowledge that hundreds of civil service man hours are being used up deciding how not to answer our questions. What a farce.Reuse content