Outlook: Sky stays one step ahead of the regulators

On prospects for BskyB, interest rates and gec
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No wonder Sam Chisholm, chief executive of BSkyB is leaving. Rupert Murdoch, with whom Mr Chisholm seems to have fallen out, was at it again yesterday, pontificating on the other side of the world about prospects for BSkyB as if it were a wholly owned subsidiary of News Corporation. In fact it is only 49 per cent owned by News Corp and is a FTSE 100 stock. If anyone should have been commenting publicly about prospects for the satellite broadcaster, it ought to have been Sky itself in the form of a statement from the board.

When Mr Chisholm started to think in this fashion, he rapidly found himself going the way of all those who quarrel with Mr Murdoch - out the door. It's a shame he didn't put up more of a fight. If nothing else, it would have made good copy. It probably also would have enhanced Sky's value for other shareholders too, for Mr Chisholm is undoubtedly a serious loss to Sky, and it is plainly very much in Sky's interests politically to be seen as independent of Mr Murdoch. Still, it was not to be and for the moment Sky remains Mr Murdoch's creature, bent towards whatever purpose the wider business empire is following.

As it happens, Mr Murdoch is probably right in what he said about Sky at the News Corp annual general meeting in Adelaide yesterday. The high costs of investing in digital satellite and sluggish growth in the subscriber base is going to lead to a "flattish" one to two years in profits. More contentious is his observation that after that Sky has a "brilliant" future ahead of it. This seems to be based largely on the idea that Sky is able to extend its present near monopoly of subscription television into the potentially much more lucrative era of pay-per-view. On this too, however, Mr Murdoch may be right. Attempts by the cable industry to challenge Sky's monopoly of sport and Hollywood have thus far met with only very limited success.

The only other potential competitor to Sky, digital terrestrial, has also largely been nobbled. Though Sky has been barred from equity participation in British Digital Broadcasting, it will be Sky sports and movie product that sustains the new platform for its first seven years of operation. The possibility that the European Commission would interfere and try to limit this agreement to, say, just two years, has largely receded. Scared off by the threat from BDB that digital terrestrial simply won't happen without the long term supply agreement with Sky, the Commission is unlikely to do anything more draconian than ban cross directorships.

For the foreseeable future, then, Sky seems to be sitting pretty, and despite Mr Chisholm's undeserved demise, it's medium term prospects do indeed look sensationally good. Eventually, of course, when digital terrestrial is up and running and the supply contract with Sky has run its course, BDB will become a head to head competitor for Sky. But all that is too far in the future to concern anyone much right now. If Pearson and other large outside shareholders in Sky are indeed planning to sell their remaining shares, they are choosing the wrong moment for it.