BSkyB puts squeeze on pay TV viewers with 5% price rise

BSKYB, the satellite television group, is set to put through its fourth successive inflation-busting price rise to customers.

The increase - more than many analysts had predicted - may be seen as provocative by regulators at the European Commission.

Brussels is investigating the £1bn that Sky has paid to renew its exclusive rights to screen English Premier League football. The Commission has suggested that the high cost of the deal may be harmful to consumers, who must subscribe to Sky to watch the games.

Sky has told customers that most will see a price rise of more than 5 per cent from next January.

The cost of Sky World, the package taken by more than half the subscribers, will rise from £38 to £40 a month. The basic "family pack" will increase from £18.50 to £19.50 a month.

Previous years have seen most packages go up by no more than a £1 a month. This time, some packages will rise by £4.50 a month.

Kingsley Wilson, an analyst at Investec Securities, said: "In the analogue era BSkyB was adept at increasing package prices by well above inflation up until 1998. During the switch over from analogue to digital, when BSkyB was vulnerable to customer churn [people leaving the service], the package increase policy was put on hold. With the majority of the base digital by January 2001 BSkyB resumed its pricing strategy."

The company has 7 million subscribers, giving it a dominant position in the pay television market. Far from losing customers, the previous price increases have seen the churn rate fall. Itnow stands at a world-beating 9.4 per cent.

Mr Wilson said the company could raise prices because it also improved its content each year. "What they do is actually give the customer hell of a lot more ... for instance 102 Champions League games. On the rise, that just 2p a game," Mr Wilson said.

Investec yesterday increases its forecast pre-tax profits by 3 per cent for this financial year (2003-4) to £511m and by 4 per cent for the next fiscal year.

The broker added that, unlike previous price rises from which some subscribers were exempt, the increase this time would be across the board.

Mr Wilson said: "Price rises set for January 2004 further demonstrate BSkyB's ability to monetise its position not only on the revenue side, but increasingly on the cost front. We envisage no impact on churn."

A spokesman for Sky said: "We continue to make very significant investments, providing new programmes, new services and new channels."

He said that, for the financial year ended June 2003, Sky had raised its spending on content by 11 per cent to £1.6bn. The new football deal was an added programming cost.