BSkyB growth marred only by ITV losses

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The Independent Online

BSkyB reported a first-half loss yesterday due to a £343m write-down on its shareholding in ITV but said increased customer loyalty meant it was on track to reach 10 million customers by 2010.

Shares in the broadcaster jumped 7 per cent with a gain of 38p to 577p as the City was reassured by revenue and operating profits for the six months to 31 December coming in ahead of expectations.

Chief executive Jeremy Darroch, who took over from James Murdoch in December after he stepped up to the role of chairman, said the company had not seen any impact from the slowdown in consumer spending.

Higher household bills and mortgages are beginning to take their toll on high street retailers and the pub and restaurant sector, but Mr Darroch said Sky could even benefit from this.

"If customers are going to tighten their belts, they will spend more time at home," Mr Darroch said. "Home entertainment becomes more important." He added that some of the company's packages were cheaper than taking the family out to the cinema or for a pizza once a month.

The satellite broadcaster posted an 11 per cent rise in revenues to £2.46bn in the first half. But the write-down on the company's controversial 17.9 per cent stake in ITV triggered a £112m pre-tax loss.

Stripping out this figure, operating profits fell to £307m from £336m a year earlier, partly due to the costs of Sky's new Barclays Premier League contract and the loss of advertising revenues because of a dispute with Virgin Media over the carriage of the broadcaster's basic channels.

Sky has been investing heavily to transform itself from a subscription television service into a provider of television, broadband and telephony which has led to greater customer loyalty. "Churn" – the number of customers leaving Sky – fell to 10 per cent from 11.3 per cent in the previous quarter.

The company recorded 167,000 net new customers for the quarter ended 31 December taking the subscriber total to 8.83 million. ARPU – average revenue per user – was at a record £421 for the quarter, up from £411 as at 30 September, and £394 a year ago.

Mr Darroch said the company was still considering whether to appeal against the ruling that it had to reduce its stake in ITV.

The holding is now worth around two-thirds of the £940m originally paid in November 2006.

BSkyB has until 25 February to appeal against the decision, which was first made by the Competition Commission in December and was backed by Business Secretary John Hutton last month. "We still haven't made a final decision yet," Mr Darroch said.

Analysts at Numis said the outlook statement was "very encouraging". "In our view, BSkyB has worked hard to improve the value of the Sky service, and accordingly we expect it to be resilient in a consumer downturn," Numis said.

But Sam Hart, at Charles Stanley with a hold rating on the stock, said: "In the medium term... we feel the relatively high rating, together with concerns over the ongoing Ofcom review of the pay TV market, slowing consumer environment and Premiership football rights negotiations in 2009 will prevent the shares from moving ahead."