BSkyB beats expectations with its subscriber growth

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The Independent Online

BSkyB, the satellite television operator, has reported strong subscriber growth in the fourth quarter, shoring up confidence in its medium-term customer targets.

The group added 77,000 subscribers in the three months to the end of June which beat market expectations and the company's own guidance that it would add around 60,000 users. The figure was nonetheless down on the 83,000 new users it attracted in the comparable period last year, raising questions about the group's ability to hit its target of 10 million customers by 2010. The company had 8.2 million customers at the end of June after adding 389,000 subscribers over the course of the year.

James Murdoch, the chief executive of Sky, said if the company maintains that rate of growth, it will hit its medium-term target, but said it does expect new services such as broadband, high-definition television and its Sky+ digital video recorder product to accelerate growth. "We are very confident in these targets," he said.

During the fourth quarter, Sky's net profit declined to £126m from £193m despite an 8 per cent increase in its revenue to £1.07bn. The profit drop came as a result of investment in its fledgling broadband service. Jeremy Darroch, the chief financial officer, said that, stripping out these costs, the underlying profit growth from its core pay-television activities was stronger.

Mr Darroch also brushed aside concerns about a dip in the company's average revenue per user, or ARPU. Sky's ARPU dropped by £4 to £388 over the fourth quarter. He attributed this to an increase in its promotional activities during the fourth quarter and said Sky will benefit from those promotions during the current quarter.

Regarding its entry into the broadband market, Mr Murdoch said its plan to provide free broadband to its television customers has "struck a chord with customers". Sky is investing up to £650m in building up its position in the broadband market over the next two years. It expects around 3 million users by 2010, at which point the service will become profitable. Mr Murdoch said that, by the end of 2007, its broadband service would reach around 70 per cent of UK homes.

Asked about the threat posed by NTL's "quad-play" service which bundles cable television, broadband, fixed-line and mobile telecoms services into one package, Mr Murdoch was dismissive. He said adding mobile to television packages proved "a potentially awkward marriage" since subscribing to broadband and television services is a more collective decision in a household than subscribing to mobile phone contracts.

Sky has been tipped to do well in the broadband market where it will compete against other aggressive new entrants such as Orange and Carphone Warehouse as well as seasoned competitors from within the sector including BT and NTL.

Sky+ added 123,000 new subscribers during the fourth quarter. Its high-definition television service added 38,000 users.