Rampant BSkyB aims to sign up millions more

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The Independent Online

BSkyB set a new target of 8 million subscribers yesterday as the pay-TV group reported its first annual profit in five years.

The company said it would hit its goal of 7 million customers by the end of 2003 early, getting to that number "within weeks". Millions more can view BSkyB channels through a subscription of another pay-TV provider, such as NTL or Telewest, or on Freeview, the free-to-air service.

Tony Ball, chief executive, said he hoped BSkyB subscriptions would reach 8 million by the end of 2005 - that's nearly a third of the homes in the country. Beyond that, Mr Ball said the company could have 12 or 13 million direct customers, once the analogue television signal had been switched off by the Government, making every household a multi-channel home. "I'm confident that 8 million [homes] is do-able. The end game for Sky is to maintain or increase our market share... this is still very much a growth story," said Mr Ball.

Five years ago, Sky decided to invest about £2bn to convert its entire customer base to digital technology, plunging the then profitable company into four years of losses. Yesterday it reported a pre-tax profit of £127.8m, for the year ended June 2003, compared with a £1.3bn loss the previous year. The post-tax profit was £190.3m, after a £62.5m tax credit. Turnover exceeded £3bn for the first time, coming in at £3.2bn - this compares with annual revenues of £3.5bn for the BBC.

"In five years, we have revolutionised Sky's business... The aim was to put clear blue water between us and our competitors. I didn't realise that our competitors would sink and drown," said Mr Ball, referring to the demise of ITV Digital and the financial restructurings that have been necessary to keep NTL and Telewest afloat.

In 1998, churn - the proportion of the customer base cancelling subscriptions - stood at 15.1 per cent. Annual revenue was £1.4bn. The number of customers was static at some 3.5 million in 1997 and 1998 and it slipped slightly in 1999.

"We had to do something [in 1998]...we had stopped growing," Mr Ball said.

Sky launched its digital service in 1998, offering customers 140 channels (against less than 40 stations in analogue) and, crucially, in 1999 it stopped charging customers for the set-top box needed to decode the Sky signal.

For the year ended June 2003, 744,000 net subscribers were added to take the total to 6.85 million. Over the year, average revenue per user (ARPU) grew 5 per cent to £366, mostly as a result of a retail price increase. Sky aims for ARPU of £400 by the end of 2005.

Asked if he had any concerns, Mr Ball found it hard to think of any. He said: "The thing I worry most about is execution. This didn't happen by accident. We have to continue to execute brilliantly."

Analysts said the only apparent concern was the possibility of a fresh regulatory investigation, from the European Commission, into Sky's new rights deal to screen live exclusive Premiership football for another three years.

Kingsley Wilson, analyst at Investec Securities, said it was "vital" that Sky retain exclusivity. Football is seen as a major driver of customer acquisition and retention.

Paul Richards, analyst at Numis, said that the cable companies - NTL and Telewest - may "at some stage" merge and improve their service to such a degree that they become a threat to Sky. "But that's quite a lot of ifs," he said. Numis forecasts 10 million Sky subscribers by 2010.

Mr Ball said a major focus now is to get Sky's credit rating to investment grade. After that, he said, the board could consider paying dividends - a resolution to enable a dividend payout will be put to November's annual general meeting.

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