Sky tackled by the referee

Investors should play a waiting game as the satellite broadcaster is investigated by the OFT

NETTING the TV rights to a large chunk of British league football gave BSkyB, the satellite broadcaster controlled by Rupert Murdoch, a rosy start to last week. BSkyB tied up the Endsleigh League - a hat-trick of divisions one, two and three - in a pounds 125m five-year deal, replicating its pounds 300m capture of the Premiership three years ago.

From next season, even more fans will have to shell out for a satellite dish or cable TV subscription or pop down to the local Sky Sports pub.

But BSkyB's ambition may yet be its undoing. In a twist worthy of any FA Cup Final, the Office of Fair Trading shocked the market on Friday by re-opening an inquiry into Mr Murdoch's near stranglehold on pay TV.

BSkyB's shares slumped 70p from a record high of 462p immediately after the announcement, following a relentless rise from around 270p since June. They rallied quickly, ending the day just 5.5p down at 428.5p, after the company dismissed complaints as nothing new.

The OFT's move, however, strengthened the argument of some market pundits that the honeymoon may be over. "The company's valuation has built up on a clear run that has ignored a high level of regulatory risk and possible future competition," one media analyst said.

BSkyB has been here before. In March, it signed a series of voluntary undertakings ending conditions that forced cable TV operators to take a "bundle" of Sky channels in order to qualify for price discounts.

Independent channels had long complained that the arrangements prevented access to cable because of BSkyB's programming muscle, notably in sport and films. However, the company, run by no-nonsense New Zealander, Sam Chisholm, has proved adept at staying just on the right side of the rules.

In May BSkyB signed 10-year programme deals with TeleWest and Nynex, the two biggest cable TV firms. Discounts and non-compete clauses attracted the wrath of the OFT, but the deals succeeded in scuppering a cable get- together aimed at outbidding BSkyB for events.

The company was formed in 1990 through the merger of Mr Murdoch's Sky with British Satellite Broadcasting. The objective was to stop the two fledgeling stations competing themselves into the ground.

Under Mr Chisholm, the upturn has been rapid. With live sport to the fore, the company has enjoyed a virtuous circle of rising subscriptions, strong advertising and lower cancellations. As one industry observer puts it: "The Premier League made BSkyB."

Investors have made vast profits on the company's pounds 4.4bn flotation at 256p last November, but the share price only started motoring four months ago after Pearson decided to cash in a pounds 550m stake, propelling BSkyB into the FT-SE 100.

Inclusion in Morgan Stanley's international index last week also led more index-tracker funds to buy in.

Pre-tax profits for 1994/5 leapt 67 per cent to pounds 155.3m as more than 4 million satellite and cable subscribers tuned in. Analysts are forecasting pounds 250m to pounds 350m next year and up to pounds 560m for 1997/8, the most explosive growth in the sector.

BSkyB puts the OFT's inquiry down to trouble-making by smaller cable firms: "We're happy to co-operate. The big cable companies have good relations with us and just want to grow the business," said deputy managing director David Chance.

But with digital TV on the way, the OFT, under new director-general John Bridgeman, looks like taking a closer look at BSkyB's deals, its monopoly of signal-scrambling technolgy and its huge, exclusive subscriber list. A full-blown Monopolies and Mergers Commission reference cannot be ruled out.

At the current price, boosted by indexation demand, the shares stand at 28 times the lowest 1997 earnings forecasts, a huge premium. Warnings about over-valuation may yet be right and the stock should be avoided until the outcome of the OFT inquiry is known.

BSkyB

Share price 428.5p

1994 1995 1996* 1997*

Turnover pounds 551m pounds 778m pounds 925m pounds 1.06bn Pre-tax profits pounds 92.9m pounds 155.3m pounds 255m pounds 345m Earnings per share 6.8p 9.2p 13.8p 17.9p Dividend per share - 2.5p 6.5p 9.0p Price-earnings ratio - 45.6 31.1 23.9 Gross yield - 0.7% 1.8% 2.4%

* Estimates

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
Life and Style
life
ebooks
ebooksA special investigation by Andy McSmith
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Sport
Christian Benteke of Aston Villa celebrates scoring the winner for Aston Villa
football
News
Bill O'Reilly attends The Hollywood Reporter 35 Most Powerful People In Media Celebration at The Four Seasons Restaurant on April 16, 2014 in New York City
media It is the second time he and the channel have clarified statements
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn