Former ITV Digital customers flock to BSkyB

BSkyB added a massive 214,000 subscribers in the last quarter of its financial year as tens of thousands of former ITV Digital customers flocked to the satellite broadcaster.

The company said it would be "no problem" to hit its target 7 million subscribers by the end of next year, after taking its direct subscriber base to 6.1 million by the end of the financial year to 30 June. The final quarter of the year saw 214,000 net new customers, well ahead of expectations of 170,000 customers, partly as a result of former ITV Digital subscribers moving over to Sky after that service collapsed. Sky said that 88 per cent of all new digital subscribers are now choosing Sky, rather than cable TV.

Tony Ball, Sky's chief executive, said the final quarter saw more new subscribers than the same three-month period in 2001, demonstrating that the company's customer base is still growing. The last quarter to show year-on-year subscriber growth was the three months to the end of March 2001. Analysts have consistently suggested that the rate of Sky's subscriber growth has stalled. However, the company maintains that it is only interested in taking on customers that are likely to be high-spending and loyal.

The cable companies have some 3.5 million homes, while an estimated 1 million households still have the digital terrestrial decoder boxes supplied by ITV Digital.

"I don't want to stop at 7 million [subscribers]. There's a way to go here. Why not 10 or 12 million?" said Mr Ball, without putting a timescale on when Sky might directly reach 12 million homes. Sky channels are also available in cable and digital terrestrial households.

Average revenue per subscriber was up 11 per cent over the financial year to £347 – Sky's target £400 in 2005. Revenues were 20 per cent higher at £2.8bn, while operating profit, before goodwill and exceptional items, also grew 20 per cent to £192m. There was positive free cashflow in the last two quarters of the financial year, allowing debt to be paid down. The company had fallen into the red when it started its big digital investment in 1998.

James Bullock, an analyst at ABN Amro, said: "The momentum for Sky is swinging completely the right way, with subscribers and revenues growing at the same time that it is able to exert greater cost control."

Mr Ball said he was confident that the cost of "big ticket" items would be brought down. Sky has already reduced the prices at which it buys set-top boxes. Over the next few years, major sports content and film contracts will come up for renewal.

Over the past 12 months, investors' perception of Sky has been transformed. The demise of ITV Digital has removed a rival. The crisis over its investment in Kirch is behind Sky and the stock overhang, as a result of a large stake in Sky held by Vivendi, has been cleared. However, the slowing general consumer expenditure that is now apparent may prove to be a problem and the outcome of an Office of Fair Trading investigation still hangs over the company.