The Investment Column: The guessing game at BSkyB

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The Independent Online
BSkyB may be a potent force in commercial television, admired for its professionalism and envied for its dominance of top films and sports events. In investment terms, however, Rupert Murdoch's satellite broadcaster is a tarnished jewel. Since peaking at close to pounds 7 in the autumn of 1996, BSkyB shares have halved in value.

Mr Murdoch himself is partly to blame. After all, he famously let it be known that the shares were overvalued - just after BSkyB's bankers had refinanced the group's borrowings. The departure of chief executive Sam Chisholm and deputy David Chance last year did little to ease the market's worries.

Investors hoping for a speedy recovery are likely to be disappointed. BSkyB is in limbo: until investors get a clearer idea of how its new 200- channel digital satellite service goes down with the nation's couch potatoes, it's hard to predict what BSkyB's prospects are.

That could take some time. The service is being launched in June, but the big marketing push will not take place until Christmas. Since subscribers will have to sign a year-long contract to get their decoders at an affordable price, it will be end of 1999 before anyone knows whether the viewers are prepared to keep on watching. In the meantime, shareholders can expect a bumpy ride as the market attempts to guess at digital's prospects.

Broadly, there are three different scenarios. The first is that the current slowdown in subscriber growth is because customers are waiting for digital television. Give them hundreds of new channels, and the market will take off again. The second is that viewers want choice but don't want a satellite dish. The final interpretation is that British viewers have reached saturation point, and won't shell out any more, no matter how many channels they get.

In all but the final case, BSkyB's future looks bright. Even if it does not sell many more satellite dishes, it has such a grip on programming that it will simply reach viewers through other platforms. For now, the risk regulators will crack down on BSkyB again at some point looks manageable.

Brokers expect earnings per share to fall this year and next, after which they will start to grow by about 15 per cent per year. Taking the low point in earnings puts BSkyB shares, up 19p to 361p yesterday, on a forward p/e ratio of 19. Investors shouldn't expect to make a quick profit. But as a long-term play, BSkyB shares are worth tucking away.