BSkyB's stake in plummeting ITV shares mars performance

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The Independent Online

BSkyB is on track to hit its target for 10 million customers by 2010, despite reporting an overall loss of £118m for the nine months to March because of the plummeting value of its stake in ITV.

City analysts remained positive yesterday as the pay TV giant's third-quarter figures reported an extra 56,000 new customers, taking it to a total of 8.9 million, revenue up 10 per cent to £3.7bn, and operating profit of £504m. Customer churn was at 10.5 per cent, the lowest third-quarter rate for four years, and average revenue per user was up by four per cent to £424, the fifth consecutive quarterly rise.

The group's overall loss was the result of a further £131m writedown of its ITV investment, taking the total to £474m for the nine-month period. BSkyB spent £940m buying 17.9 per cent of ITV in November 2006. But since then the stock has dropped through the floor, with a current high in 2008 of 66.4p.

Jeremy Darroch, the BSkyB chief executive, is bullish about ITV – although it remains to be seen whether BSkyB will be allowed to retain its stake when the company's appeal against a Competition Commission ruling is heard by a tribunal in early June.

"I would rather not sell because we were always investing to get a return," Mr Darroch said. "Our view when we made the investment was that we were willing to be a long-term shareholder and that was rooted in our belief that a different management team at ITV could do a lot better. Under accounting standards we must mark to market, and I would not suggest we were happy with the ITV share price, but the opportunity has not gone away."

Even without the ITV investment, operating profits for the nine-month period are down 18 per cent on last year, largely due to the company's £127m broadband investment. So far the service has 1.4 million customers, but it will remain a loss leader for another two years, Mr Darroch says.

"The original plan was for three years of reasonably heavy investment but it will start to make money from 2010," he said. "But we are already seeing significant benefits elsewhere – we have used the broadband offering to remove discounts in the TV business, for example, and broadband customers have a much lower churn profile than TV-only customers."

Investec retained its "buy" on BSkyB shares yesterday. "This is a decent result against tough comparatives [with last year] and provides little ammunition for the bears," it said.

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